easyJet cuts dividend as per-seat revenue falls

At a cost of £25m for the coming year, the move won’t have much of an impact on profitability, although it still represents 11 per cent of the funds given over to dividends in FY2019. Other airlines will invariably follow suit, and while easyJet’s management admits it is an “interim measure”, the impact of carbon offset over the long haul is impossible to gauge at this point.

Sales growth once again fell shy of capacity expansion, with top-line growth behind the 10.3 per cent capacity increase. Deteriorating consumer confidence and falling discretionary spending were to blame for a 1.8 per cent drop in revenue per seat, although self-help initiatives such as the group’s late-yield pricing initiative and the positive impact of industrial action at British Airways and Ryanair (RYA) helped to mitigate the cyclical decline.

The deterioration occurred in the first half of the year, with revenue-per-seat growth restored to 0.8 per cent in the latter period. Lower profits had a knock-on effect on return on capital employed, causing it to fall 320 basis points from its restated level of 14.6 per cent to just 11.4 per cent. As flagged in October’s trading update, load factor – essentially the utilisation of the group’s airlines – fell 1.4 percentage points to 91.5 per cent. Again, mitigating initiatives linked to product and pricing, along with improved conversion rates, help to shore up trading performance in the face of hardening markets.

Management has reported that bookings are ahead of last year – albeit against a weak comparator – and is guiding for capacity growth at the lower end of its previous 3-8 per cent range, while constant currency revenue per seat is slated for low-to-mid single-digit growth. The Bloomberg consensus forecast points to adjusted EPS of 92.3p for the year to September 2020, up from 88.7p in FY2019.