Business World

Thursday 21 November 2019

EasyJet caution on pricing overshadows profit upgrade as airline seeks CEO replacement

* Fierce competition to keep pressure on yields

* Budget airline raises outlook for profit after strong Q3

* European unit takes first flight after Brexit contingency

* CEO McCall says "business as usual" ahead of ITV switch

EasyJet (stock image)
EasyJet (stock image)

Alistair Smout

Cautious comments by easyJet on the outlook for summer pricing hit its shares and those of rival airlines, overshadowing an increased profit target after a strong quarter.

The airline is seeking a replacement for CEO Carolyn McCall, who is joining broadcaster ITV. While McCall said she was leaving easyJet in a strong position, the comments on pricing highlight one of the challenges her successor will face.

EasyJet said revenues per seat were up 2.2pc in its third quarter but expected yields to remain under pressure into its next financial year.

It said it expected full-year profit before tax to be in the range of £380m to £420m, above a company-supplied analyst consensus for 380 million pounds.

EasyJet said the wide range for its profit outlook reflected uncertainty over prices, echoing comments from other carriers.

"Q3 performed better than we anticipated... but as we've said in our guidance, for Q4 we still see pressure on our yields coming through for the full year, and hence the range is quite broad," Chief Financial Officer Andrew Findlay told reporters.

Shares briefly rose at the open, hitting its highest level since Britain voted to leave the European Union in June 2016, before reversing and dropping 5.6pc to 1,339p. EasyJet's stock remains up over 30pc so far this year.

Shares in other European airlines also fell by between 2.7pc and 6.2pc. Ryanair, Air France-KLM and British Airways parent IAG report results next week.

Despite bumper summer bookings and profit upgrades, some European carriers have cautioned that pricing would remain tough as low fuel prices lead them to add seats, albeit at a slower rate of expansion than last year.

Lufthansa said on Monday after upgrading its 2017 profit target that it expected unit revenues to be down in the second half of 2017, after rising slightly in the first half.

Low cost carrier Wizz Air, which also said its annual profit would be at the higher end of guidance, said on Wednesday it remained cautious on yields.

Analysts said the commentary around prices would overshadow the update.

"We see a growing risk that winter 2017/18 might see supply growth increase and industry pricing risk become more adverse," RBC analyst Damian Brewer said in a note, which still increased the bank's target price to 1,450p from 1,325p.

The airline also said it had received approval for an Air Operators Certificate (AOC) in Austria.

The AOC for its new European subsidiary, which operated its first flight to Vienna on Thursday, protects its flying rights in the European Union once Britain leaves the bloc.

The Austrian licence resolves one major Brexit uncertainty for the airline, and was announced just days before the news of McCall's departure.

The firm would look at internal and external candidates for CEO and there was no timing for announcing an appointment, McCall said.

"I'm here until the end of the calendar year, and over that period, it will be very much business as usual for me," she told journalists.


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