EasyJet Says Drop in Airfares Will Accelerate 

(Bloomberg) -- EasyJet Plc said a decline in ticket prices is accelerating amid a fare war prompted by overcapacity across the European airline industry.

  • Britain’s biggest low-cost airline said Tuesday that revenue per seat, a measure of fares, will drop by mid-to-high single digit percentage points in the fiscal second quarter through March, at constant currencies. That’s after a 4.2 percent drop in the first quarter.

Key Insights

  • Demand remains strong, with first-quarter revenue up 14 percent, aided by a jump in spending on add-ons such as pre-booked seats, while forward sales are “robust” despite uncertainty around Brexit. But fares are taking a pummeling, especially in Berlin, where a base opened after the collapse of Air Berlin will post a loss in 2019.
  • Ryanair Holdings Plc set the tone last week with a second profit warning in 3 1/2 months as winter fares fell three times faster than predicted. Conditions are now starkly different from a year ago, when the exit of Air Berlin and Monarch Airlines removed excess seats and lifted fares -- though EasyJet says rivals have been more disciplined in restoring capacity growth in some of its markets.
  • EasyJet said it’s comfortable with analyst earnings estimates, which suggest a 2019 pretax profit of 580 million pounds ($747 million), according to data compiled by Bloomberg. First-quarter numbers will be dented by a 10 million-pound hit from disruption by December’s drone raids at London Gatwick airport, the carrier’s biggest base.
  • Bernstein analyst Daniel Roeska said in a note that EasyJet has worked to hold fares steady at the expense of occupancy levels, and with some success, but will need a “very strong” second-half performance to reach the consensus figure. Bookings for Easter, which falls in its third quarter, may be stoking over-optimism.

Market Reaction

  • Shares of Luton, England-based EasyJet fell as much as 1.3 percent and were trading 0.4 percent lower as of 8:01 a.m. in London, trimming gains so far this year to 4.5 percent after the company lost a quarter of its value in 2018.

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  • Chief Executive Officer Johan Lundgren said on a call that European Union ownership of EasyJet has risen to 49 percent, easing concerns about its right to perform intra-EU flights after Brexit. The carrier has a head-start on other U.K. carriers since its founder and No. 1 shareholder Stelios Haji-Ioannou is a Cypriot national.
  • The IATA trade group last month identified Europe as the only global region likely see earnings worsen this year, though Bernstein’s Roeska has said it’s not clear whether falling discount fares will read across to network carriers like British Airways, where price increases for business travelers appear to be sticking.
  • To read the EasyJet statement click here

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