Budget airline easyJet (EZJ) may soon encounter some turbulence. Outgoing chief executive Carolyn McCall has warned that increased capacity could soon put pressure on yields during the group's latest quarterly update. This excess capacity is an issue across the wider industry, as airlines tend to increase the number of seats they offer when lower fuel prices makes it cheaper to operate flights.
Jozsef Varadi, chief executive of fellow low-cost airline Wizz Air (WIZZ), expressed similar sentiment to Ms McCall earlier this week when he warned that airlines tend to compete away the benefit of lower fuel prices with extra capacity. As a result he is “cautious on the prevailing yield environment” during the second half of the year. Management at Ryanair (RYA) also stated in May that average fares during the year to March 2018 could fall by between 5 and 7 per cent, due to a combination of weak sterling and continuing excess capacity in Europe.
easyJet has continued to increase capacity this year. It was up by 9.5 per cent during the third quarter to 24m seats. The number of passengers carried increased by 10.8 per cent to 22.3m with a load factor of 93.1 per cent, an improvement of 1.1 percentage points. Revenue per seat was up 2.2 per cent at constant currency and total revenue increased 16 per cent to £1.4bn, although this was largely aided by Easter falling during the third period of this year.
