easyJet have followed International Airlines Group and issued a profit warning for the 3rd quarter after operational disruption, caused by strikes and weather events, combined with lower demand in the run up to the EU referendum and following the Egyptair tragedy.
Together these negatively impacted Q3 profit before tax by approximately £28m and resulted in revenue per seat at constant currency falling by 8.6 percent, compared to the 7 percent decrease anticipated at the half year. The company believes the Leave vote means economic and consumer uncertainty to cause revenue per seat at constant currency to decline by at least a mid-single digit percentage in the second half versus a year earlier. Movements in fuel prices and exchange rates are expected to add a further £25m to costs this year, above those guided to at the half year.
easyJet experienced 1,061 cancellations in the third quarter, and over 700 in June – compared to 487 cancelations in June 2015. Cancelations this year were largely the result of continued strike action by French Air Traffic Controllers, runway and congestion issues at Gatwick airports, and severe weather.
EasyJet shares down nearly 8 percent in early trading. Nicholas Hyett, Equity Analyst, Hargreaves Lansdown “A vote by Britain to leave the EU can hardly help a company like easyJet, particularly seeing as the fall in the pound will put Britons off travelling overseas. However, this morning’s profit warning is as much a result of massive operational disruption as falling passenger demand. Rain, strikes and the impact of the EU referendum have all damaged profits, and resulted in revenue per seat at constant currency falling further.
The industry has been increasing capacity for some time and this is squeezing revenues per seat, especially as falling fuel prices are beginning to be passed through. Until now easyJet has been coping well, with rising passenger numbers offsetting lower unit revenues. Hopefully, there will be no further disruptions to traffic in the remainder of the year – in recent times, the company has had to cope with terrorism, air traffic control strikes and a major fire at Rome’s airport.
The falling price of crude oil has been leading to real savings in jet fuel costs, but a small recovery in oil prices seems to have taken the company by surprise – the company has fallen back on a still greater focus on cost cutting in order to protect profits as far as possible.”
