As easyJet's losses double, the airline announces a shutdown in growth as it struggles with rising oil prices and taxes
Rising oil prices and aviation taxes have nearly doubled easyJet losses as the budget airline announced a freeze in fleet growth over the next two winters.
EasyJet admitted that consumers will not swallow the higher fares needed to offset higher costs, so aeroplanes will be parked in slower months to stem losses. The Luton-based carrier revealed the capacity squeeze as first-half pre-tax losses, racked up during the traditionally quiet six months to 31 March, rose from £79m to £153m.
EasyJet highlighted the struggle for airlines to pass on soaring costs as revenue per seat slipped by 2.1%, which it attributed to a £1 increase in air passenger duty last autumn to £12 per flight. The near-doubling of losses was driven by a £43m impact from fuel, which now accounts for more than a quarter of the cost base, and a £21m hit from APD. EasyJet said it would hold its fleet size for its 2011 and 2012 winter programmes at 204 planes, while warning that it could change plans to grow its total fleet from 199 jets to 220 over the next two years.
EasyJet's chief executive, Carolyn McCall, said the entire industry is planning for a sustained fuel spike, in a portent of the oil price rise that bankrupted dozens of airlines in 2008. Jet fuel reached $141 (£86) per barrel at the end of last month, an increase of 45% over the past year. "We are planning for fuel prices to stay high. History shows that when the price rises there is an impact on yields [fares] and passenger numbers," she said. Last week Willie Walsh, chief executive of the group that owns British Airways and Iberia, said the industry should base its business plans on oil prices above $100 per barrel.
Despite the cautious outlook, investors marked up easyJet's shares by 2.9% to 357p. Andrew Lobbenberg, analyst at RBS, said the positive reaction to the statement reflected investor belief that the company had overcome several crises over the past year, including problems at its Gatwick base, clashes with founder Sir Stelios Haji-Ioannou and a surprise warning on earnings in January: "They have been on back foot with the operational problems, fights with Stelios and profit warnings. But this time they have got the operational side running, they have delivered their numbers and they are much more on the front foot," he said.
Sir Stelios said the capacity freeze should allow easyJet to announce a special dividend, on top of a maiden shareholder payout due in 2012.