EasyJet Takes £200m Profit Hit as Iran War Disrupts Travel Demand and Fuel Costs
Key Takeaways
- •EasyJet's quarterly profit fell 70 percent year-on-year to £85 million, driven by higher fuel costs and weaker travel demand linked to the Iran war.
- •Fuel costs rose by £100 million annually, with fuel cost per passenger increasing 13 percent despite 79 percent of requirements being covered by fixed-term contracts.
- •The airline's pre-tax profit per seat grew 14 percent as stronger in-flight sales revenue partially offset a decline in passenger numbers.
- •EasyJet's proposed £5.7 billion acquisition by Apollo faces potential complications after the EU announced plans to review foreign ownership rules for European carriers.
- •Chief Operating Officer David Morgan will retire from his executive role and be succeeded by current Chief Commercial Officer Sophie Dekkers.
EasyJet has reported a £200m profit hit as the budget airline contends with higher energy costs and weaker travel demand linked to the Iran war.
The FTSE 250 carrier said profit for the three months to June fell to £85m, down 70 per cent from £286m in the same period a year earlier. Passenger volume declined by 100,000 to 25.8m over the quarter.
EasyJet said fuel cost per passenger rose 13 per cent, equivalent to a £100m year-on-year increase in costs. Airlines have faced warnings about a potential jet fuel shortage since war broke out in the Middle East, although EasyJet had previously played down those concerns.
Fuel costs rise by £100m
The airline said 79 per cent of its fuel requirements are covered by fixed-term contracts. Even so, it said every $100 per metric tonne movement in the fuel price adds £17m in costs.
EasyJet said concerns about the impact of the Iran war have encouraged customers to book at the last minute. The company added that more customers are now beginning to book trips for later in the year, but said those advanced bookings require more “price stimulation.”
“We have continued to manage the impact of the Middle East conflict, and its effect on fuel prices and booking trends, during the quarter,” chief executive Kenton Jarvis said.
Despite the decline in passenger numbers, EasyJet said it is generating more revenue from in-flight sales. The company’s pre-tax profit per seat increased by 14 per cent.
The update follows a sharp fall in EasyJet shares on Wednesday afternoon, when the stock slid by as much as 11 per cent after reports of a possible EU review that could put a proposed takeover in doubt.
An official told Reuters that the EU is planning a review to “protect strategic autonomy” and ensure control of regional carriers remains within the bloc. The potential review has raised uncertainty around the proposed acquisition of the airline.
Apollo offer in focus
EasyJet had previously said it was “minded to accept” a takeover bid from private equity firm Castlelake. Earlier this month, however, the airline agreed terms with investment group Apollo on a £5.7bn deal.
Duncan Ferris, an analyst at Freetrade, said: “Given the volatility of Easyjet’s earnings, today’s update makes Apollo Management’s £7.15 per share offer look potentially more attractive to shareholders.
“However, yesterday’s news that the EU will review European airline ownership rules around foreign takeovers means the American asset management firm’s takeover plans might be stuck on the runway.”
EasyJet also announced on Thursday that chief operating officer David Morgan has chosen to retire from his executive role and return to flying as an EasyJet pilot.
Sophie Dekkers, the company’s chief commercial officer, will succeed Morgan as chief operating officer.
“Sophie will oversee the next phase of operational development, driving productivity improvements while continuing to build on our strengthened operational performance and customer satisfaction levels,” EasyJet said.
