EasyJet has revealed a 70% slump in profits due to soaring fuel costs and lower bookings caused by the Iran war, just weeks after agreeing in principle to a £5.7 billion takeover approach.
The budget airline reported pre-tax profits tumbling to £85 million in the three months to June 30 from £286 million a year earlier, with fuel costs rising by £105 million after the Middle East conflict sent energy prices rocketing.
It said bookings had begun to improve slightly but that the overall outcome for the full year “remains dependent on the important remaining bookings, as well as fuel prices, which continue to be volatile”.
Takeover Developments
The update follows just two weeks after easyJet reached an agreement in principle on a £7.15-a-share takeover by US private equity firm Apollo valuing the group at £5.7 billion. It saw Apollo muscle in on a £5.5 billion proposed offer from rival US investment firm Castlelake, which easyJet had also agreed to in principle just days before. But Apollo is yet to table a firm offer, with a deadline set for August 7 to make a bid or walk away under City takeover rules.
Operational Impact
In its third quarter update, easyJet said passengers increasingly booked closer to departure and that while late bookings were strong, this did not fully offset weaker demand due to the Iran war and consumer worries over jet fuel supplies. Passenger numbers fell 0.4% to 25.8 million in the quarter, while its load factor – a key measure of how well airlines fill their planes – was also lower.
Its easyJet holidays arm, which offers packaged deals, saw profits dip to £84 million from £86 million a year ago, though it said it increased its market share. The group said strong late bookings have continued in the all-important summer season, with “bookings beyond the month of departure also beginning to improve, albeit still needing some price stimulation”.
Fares fell by 1% on average in its third quarter as it looked to boost flagging demand, while prices are largely flat so far in its final quarter to the end of September as it holds off from passing on fuel cost hikes, easyJet said.
CEO Commentary
EasyJet chief executive Kenton Jarvis said: “We have continued to manage the impact of the Middle East conflict, and its effect on fuel prices and booking trends, during the quarter. Pricing has been attractive, driving strong late booking demand for our flights and holidays.” He added: “As consumer confidence increases, we are seeing the load factor gap close for peak summer and an extension of the booking curve as customers continue to prioritise travel.”
Shares in the firm lifted 6% in morning trading on Thursday.
Mr Jarvis said the border control queues at airports due to the new European entry-exit system (EES) had been better than feared for the start of the school holidays, as countries have been given flexibility on how to put the requirements in place at times of stress. He is now calling for this flexibility to be extended past September, to cover the often busy half-term school holiday season in October.
