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Strikes, bad weather and Brexit cloud easyJet's route

There are undoubtedly short-term issues for the company to deal with, but its business model is not broken
June 28, 2016

The storm surrounding discount airline easyJet (EZJ) could hardly be more perfect. French air traffic control strikes and inclement weather have led to a surge in cancellations during its third quarter - reaching 1,061 flights. These factors alone have hit profits, but add to the mix weaker consumer sentiment on the back of terrorist incidents and the UK's decision to leave the European Union, and the runway looks particularly bumpy.

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Management said third-quarter pre-tax profits had been hit by £28m and revenue per seat dropped 1.6 percentage points. This means revenue per seat at constant currency in the third quarter will fall by around 8.6 per cent, compared with the 7 per cent decrease guided at the half-year results.

But the company has cash on the balance sheet, is cash generative and operates from 31 countries. The business model is not broken, as one investor who backs the stock said. And as we have previously highlighted, the long-term outlook is for the company to take share from legacy carriers across Europe.