Easyjet shares slip despite bullish full year results
01:00, 17 november 2015
· Av CMC Markets
A few weeks ago Easyjet launched a brand campaign to coincide with the 20th anniversary of its first flight from Luton to Glasgow as it grew from modest beginnings to become an industry disruptor and one of the biggest budget airlines in Europe.
The narrative of the campaign is one of a love story which is a rather sugar coated example of the emergence of the budget airline business model of the last twenty years.
While there is no question the emergence of budget airlines has been a boon for consumers over the last twenty years, making air travel much more affordable, the growth hasn’t been without its growing pains, and the current growth model is likely to face considerable challenges in the coming months in the aftermath of the Sharm el-Sheikh air crash, and events in Paris at the weekend.
Budget airlines work on the basis of a churn and turn business model and the prospect of increasing security checks at the airports these airlines serve could well add to the airlines operating costs.
In an increasingly uncertain world we’ve seen global flashpoints increase since the Arab spring in 2011, while this year alone we’ve seen attacks in Egypt, Kenya, Tunisia and Turkey, and that was before the latest tragedy involving the Russian aircraft in the Sinai Peninsula, and Friday’s tragic events in Paris
In October this year the company’s passenger numbers showed that passenger load count was at a fairly impressive 93.3%, at 6.4m passengers, up 2.5% on the year, while today’s full year results showed an 18.1% rise in pre-tax profits to a record £686m. The company announced an increase in the dividend to 55.2p per share, a 21.6% increase on the year before.
Overall revenues came in at the lower end of expectations at £4.69bn, slightly below the upper end of expectations of £4.71bn, but were still a 3.5% improvement on the previous year. This, it could be argued is slightly disappointing given that on a cost per seat basis, margins were better, falling 3.4% on a combination of lower fuel prices and improved efficiencies.
Despite all of this the share price reaction has been disappointing with the shares dropping back, but that could be due to the company omitting to say what effect the recent events at Sharm el-Sheik have had on its trading in recent weeks, as well as concerns about the weekend events in Paris and a possible fallout from that in the lead-up to Christmas.
Given all these uncertainties, despite CEO Carolyn McCall’s bullishness, investors may be thinking that next year’s forecasts of £4.9bn for revenue growth look more challenging for 2016, than perhaps was the case a few weeks ago.
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