EasyJet [EZJ] warned on Monday that it expects profits in the first half of 2019 to be hit by weaker customer demand due to the many unanswered questions surrounding Brexit, as well as Europe’s slowing economy that has already caused a seat glut, pushing ticket fares down.
The UK budget airline’s “cautious” approach led it to forecast a 7.4% fall in revenue per seat at constant currency for the period in line with previous warnings, and expects losses to be about $275m compared to £212m in the same period a year earlier.
Despite easyJet nevertheless expecting total revenue to grow by 7.3% to £2.3bn and seat capacity to increase 14.5% to 46.2 million for the first half of 2019 , the airline’s share price plummeted 7.5% to 1033p in early trading, sparking a wider sell-off of its competitors including Ryanair [RYA], which fell 4.1%, and British Airways owner IAG, which dropped 1.6%. EasyJet’s stock has fallen 35% over the last year.EasyJet 1-year share price performance, CMC Markets, as at 3 April 2019
“EasyJet’s warning about softer ticket prices has sent shockwaves across the airline industry, adding to problems already voiced by tour operators and suggesting that 2019 could be a washout for the travel sector,” Russ Mould, investment director at AJ Bell, said.
Other European low-cost airlines including Ryanair have also issued profit warnings, as many of the continent’s low-cost carriers are troubled by higher fuel costs, declining seat prices amid expanding capacity and economic woes across various regions. Just last week, Iceland’s Wow Air collapsed.
While easyJet’s chief executive Johan Lundgren did highlight the reduced number of cancellations and continued high levels of customer satisfaction from the 43 million people that flew with the company during the first half of 2019, he also raised concerns for its second half, which includes its peak summer season.
|PE ratio (TTM)||11.82|
|Operating margin (TTM)||9.00%|
EasyJet stock vitals, Yahoo finance, as at 3 April 2019
“For the second half we are seeing softness in both the UK and Europe, which we believe comes from macroeconomic uncertainty and many unanswered questions surrounding Brexit which are together driving weaker customer demand,” Lundgren said.
George Salmon, equity analyst at Hargreaves Lansdown, believes that Brexit uncertainty as well as higher fuels costs will continue to cloud the company’s profits.
“For the second half we are seeing softness in both the UK and Europe, which we believe comes from macroeconomic uncertainty” - easyJet chief executive Johan Lundgren
“The group reckons demand will pick up later in the year, but a more pragmatic observer would say it’s difficult to put a timeframe on when Westminster and the EU 27 will solve the Brexit puzzle,” he said.
EasyJet’s warning comes as MPs prepare to vote on another series of Brexit options, after rejecting Theresa May’s withdrawal deal for the third time last Friday.
No matter Brexit’s outcome, easyJet does however believe that it is well prepared for the UK’s departure from the EU and that it will be “flying high as usual”.