Join our community of smart investors

Strikes ground easyJet ambition

After a bumper first half for budget airline easyJet, fears are mounting after a "difficult April".
May 12, 2015

Making good on last month's promise, budget airline easyJet (EZJ) reported a profit in the first half after a weak euro and oil price falls boosted interim figures. The group typically reports a loss at the halfway stage, but this trend was reversed by a foreign exchange gain of £18m, coupled with a 6.3 per cent drop in fuel cost per seat at constant currency. Nevertheless, the airline's share price dropped by 10 per cent following the release of these figures, reflecting what the company called a "difficult" April.

IC TIP: Buy at 1,685p

That statement refers to extended French air traffic control strikes last month, which prompted the cancellation of more than 600 flights. Chief executive Carolyn McCall says this disruption could drag full-year profits down by £25m. Revenue per seat is also expected to decrease by low single-digit percentage points in the second half, as the group slashes fares to reflect the low fuel-cost environment. Analysts at Numis trimmed full-year pre-tax profit forecasts by 4 per cent to £660m, giving EPS of 133p, compared with 113p in 2014.

Remarking on the recent Germanwings disaster, Ms McCall admits there was "always a cooling-off period" in the wake of a plane crash, but said customers will be able to take advantage of "great deals this summer" as the group cuts fares to reflect fuel savings. The airline chief also insists margins should remain stable as costs continue to fall. Cost per seat excluding fuel dipped 1.4 per cent in the first half thanks to a beneficial exchange rate, but at constant currency, the same costs rose 2.9 per cent. This was down to higher charges at German and Italian airports, crew recruitment costs for new bases and higher levels of de-icing. Assuming similar levels of disruption, cost per seat at constant currency excluding fuel should increase by 2.5 per cent come the year-end. But factor in the global oil price and overall cost per seat at constant exchange rates should dip 1 per cent.

EasyJet is keen to maintain its disciplined approach to capacity as well. In the first half, the airline's competitors upped capacity by 7.7 per cent while easyJet increased its own capacity by 3.6 per cent.

EASYJET (EZJ)
ORD PRICE:1,685pMARKET VALUE:£6.7bn
TOUCH:1,684-1,685p12-MONTH HIGH:1,929pLOW: 1,207p
DIVIDEND YIELD:2.7%PE RATIO:13
NET ASSET VALUE:438p*NET CASH:£254m

Half-year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20141.70-53-10.4nil
20151.7771.3nil
% change+4+113+113-

Ex-div: na

Payment: na

*Includes intangible assets of £476m or 120p a share