EasyJet plans first-ever dividend as profit jumps 70pc
EasyJet Chief Executive Officer Carolyn McCall said Europe’s second-largest discount airline will begin dividend payments and offer flexible tickets to lure business flyers after full-year earnings jumped 70pc.
Net income rose to £121.3m (€143m) in the 12 months ended September 30 from £71.2m a year earlier EasyJet said in a statement today. Analysts had anticipated earnings of £114m.
McCall, CEO since July, said a strategy review has shown that EasyJet, 15 years old this month, can support dividend payments when profitable and should sharpen its focus on corporate customers to boost revenue.
Stelios Haji-Ioannou, the airline’s founder, had lobbied her to return cash to investors and adopt to a less-seasonal and tourist-dependent model.
“This looks like a sensible strategic plan,” said Wyn Ellis, an analyst at Numis Securities in London with a “hold” rating on EasyJet stock. “It’s just a question of whether Stelios buys into it.”
McCall, 49, who joined from Guardian Media Group with no experience of the aviation industry, said that EasyJet will make its first shareholder payment in 2012 for the current fiscal year, conditional on a dividend cover of five times.
The fleet will grow by 24 aircraft to 220 by September 2013, EasyJet said, equal to 7pc capacity growth. The carrier pledged last year to restrict seating increases to 7.5pc annually versus an average of 15pc between 2005 and 2008. Stelios had said that was still too high.
While the carrier’s fundamental business plan is “sound,” the review has shown that it can take a bigger share of the European short-haul market and boost the proportion of corporate flyers beyond the current 18pc, the CEO said.
To target that market EasyJet will introduce flexible fares allowing customers to change flights until two hours before departure.
Passengers will be able to make unlimited changes one week before and up to three weeks after the booked date, and the fare will include speedy boarding and one checked luggage item.
“We want to target more business customers,” McCall said in an interview on Bloomberg Television’s Countdown with Maryam Nemazee. “It will be an investment, but one that will return itself quite comfortable.”
EasyJet was trading up 0.2pc at 472.9 pence as of 8:10am in London. The stock has advanced 34pc this year, compared with a 25pc gain the eight-member Bloomberg EMEA Airlines Index, for a market value of £2.03bn.
Budget airline Ryanair has added 26pc for a market value of €5.65bn. The carrier paid a one-time dividend of €500m last month, its first such award, after Chief Executive Officer Michael O’Leary opted to limit fleet growth, citing the maturation of the discount-travel market.
EasyJet shares jumped 12pc on October 6, the most in 20 months, after the company said full-year pretax profit had beaten a £150m top-end forecast issued on May 11. The exact figure was £154m, it said today.
McCall has also eased tensions with Stelios by resolving a brand-licensing dispute.
The October 11 deal allows the carrier to use the “Easy” identity to boost revenue through marketing deals with other companies for up to 50 years, in exchange for paying its founder a royalty of 0.25pc of revenue, fixed at £3.9m and £4.95m in the first and second years.
The CEO has also faced crew shortages that caused delays across over the busy summer months. McCall said today that revised assumptions for staff numbers, flexible rosters and improved management and communications should address the issue.
Full-year sales advanced 11pc to £2.97bn as EasyJet added planes and opened new bases. Net income was equal to 28 pence a share, up from 16.6 pence a year earlier.
EasyJet is benefitting from a surge in demand that’s led airlines across Europe to announce higher earnings and revise outlooks.
Ryanair said on November 1 that net income will increase to as much as €400m in the 12 months ending March 31 after second-quarter profit jumped 32pc on rising traffic and fares.
British Airways, the biggest UK carrier, posted its first profit in two years on October 29 and Air France-KLM Group and Deutsche Lufthansa have also raised their forecasts.