EasyJet Bets on Bigger Airbus Jets After Record Winter Loss
EasyJet Posts Record First-Half Loss on Weak Pound, Lower Fares
(Bloomberg) -- EasyJet Plc upgraded an order for 30 Airbus SE narrow-body aircraft to the biggest A321 variant in a bet that fare declines are set to ease after pushing it to record winter losses.
The switch marks EasyJet’s first deal for the new plane, which has 49 more seats than the A320 model, previously the largest in its fleet. Deliveries start next summer, the discount carrier said Tuesday, adding that some other orders will be deferred and older jets retired early to limit the impact on capacity.
EasyJet is buying new planes after projecting that revenue per seat, a measure of fares, will drop by only a low single digit percentage this quarter after slumping almost 10 percent in the fiscal first half through March 31. That pushed the carrier’s adjusted pretax loss to 212 million pounds ($273 million), leading its shares to decline as much as 6.8 percent.
Some 77 percent of seats have already been sold for the current three months, with 55 percent booked for the fourth quarter, more than at the same time last year, Chief Executive Officer Carolyn McCall said. Competitors are also reining in capacity, easing a glut in supply.
Adding the A321 is a “purposeful and strategic” move that will help EasyJet exploit opportunities presented by a bankruptcy filing at Alitalia SpA, the break up of Air Berlin Plc and growth curbs at Norwegian Air Shuttle ASA and IAG SA’s Vueling arm, McCall said in an interview with Bloomberg Television.
The bigger planes will also shave about 9 percent from unit costs and maximize growth at major hubs where operating slots are scarce during peak hours, such as London Gatwick and Paris Orly, she said.
Capital Saving
The switch leaves EasyJet with orders for 70 A320neos, with the first due for delivery next month, as well as options to buy 100 more Airbus narrow-bodies. There are no plans right now to convert more existing contracts to A321s or to dip into the options, which are available for 10 years, according to McCall.
Wider fleet adjustments mean EasyJet will have 304 planes by the end of fiscal 2019, 38 more than it had as of March 31 but eight fewer than previously projected. The change will shave 250 million pounds from capital spending, according to Chief Financial Officer Andrew Findlay. The proportion of 156-seat A319s will be cut from more than 50 percent to barely a quarter by 2021.
Carolyn McCall.
Shares of Luton, England-based EasyJet were trading 5.4 percent lower at 1,239 pence as of 11:33 a.m. in London, paring gains this year to 23 percent and valuing the company at 4.92 billion pounds. Analysts had predicted a loss of 176 million pounds.
Sterling’s slide following last summer’s Brexit vote wiped 82 million pounds from first-half earnings, while the discounting drive ate up savings from lower fuel costs and came as demand remained subdued on some routes following a spate of terrorist attacks on European cities and tourist centers. Easter also fell outside the period, depriving EasyJet of about 45 million pounds of profit.
Company forecasts for fiscal 2017 are in line with the market consensus, McCall said. Analysts predict a pretax profit of 372 million pounds, down from 495 million pounds last year, the average of 21 forecasts collected by Bloomberg.
EasyJet said it remains on track to source an air operating certificate located in mainland Europe this summer. The carrier may need the flying rights to carry on serving routes within the European Union once Britain exits the bloc.
To contact the reporter on this story: Benjamin Katz in London at bkatz38@bloomberg.net.
To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper