EasyJet Says Fares to Drop in Second Half

(Bloomberg) --

EasyJet Plc rose after saying it’s taken steps to reduce the impact of air-traffic disruptions this summer, offsetting an expected slump in fares and uncertainty surrounding Brexit.

The discount carrier has made changes to optimize scheduling and doubled the number of backup planes on standby, which will help it avoid costly delays and cancellations from air-traffic control strikes and bad weather. The changes will help lower EasyJet’s costs per ticket sold for the fiscal year, rather than flat as previously expected, according to a statement Friday.

Airlines in Europe suffered record levels of disruption last year, with weeks of thunderstorms across central Europe adding to delays. EasyJet’s proactive approach means it will hold to profit forecast for the year, helping to counter the impact of slumping fares amid tough competition and stunted bookings from Brexit.

EasyJet shares advanced as much as 7.4%, the biggest intraday gain in a month. The stock was up 4.2% at 9:20 a.m. in London. After hitting a two-year low on Thursday, the shares are down 7.6% this year.

The sharpened focus on cost per seat is a positive and should help the company deliver a pretax profit of 437 million pounds ($558 million) for the full year, RBC Capital Markets analyst Damian Brewer said.

EasyJet had previously taken a more positive view of summer trading than some of its rivals, and its comments Friday add to an increasingly gloomy view of industry prospects for the busy season. Deutsche Lufthansa AG, Europe’s biggest airline, has taken the drastic step of freezing capacity at its Eurowings discount arm, while tour operator Thomas Cook Holdings Plc this week warned of a drop in bookings and wrote down its U.K. business.

“It is definitely a tougher environment out there,” EasyJet Chief Executive Officer Johan Lundgren said in a Bloomberg TV interview, with EasyJet having to contend with “uncertainty around Brexit and what that will mean for flying,” as well as macroeconomic factors.

Revenue per seat, a measure of pricing, will now be “slightly down” in the second half, despite the positive impact of Easter, which falls in the period this year. The same measure showed a 7.4% decline in the first half through March, though that coincided with the winter low season during which carriers always struggle to make a profit.

EasyJet confirmed preliminary figures issued last month that the company suffered a 275 million-pound pretax loss in the first six months. The carrier said its expectations for full-year pretax profit are unchanged and in line with market forecasts.

Bernstein analyst Daniel Roeska said that following its positive comments EasyJet is now “under pressure to deliver” and will need a reduction of 1.5% in costs per seat to hit targets.

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