Luton-based EasyJet (EZJ) slips 2.4% to £17.01 after the low-cost carrier's first quarter update warns investors that first-half losses this year are likely to outstrip the £61 million shortfall reported in the same period a year earlier.

The group expects to report an interim loss before tax of between £70 million and £90 million assuming normal levels of disruption. With Easter this year falling in the second half of the fiscal year, the group's first-half results could be affected by a shortfall in revenues of as much £25 million, which is what last year's holiday added to revenues after falling on 31 March.

European short-haul airlines typically generate the majority of their returns in the busy summer period and look to minimise their losses over winter. During the first six months of the financial year, EasyJet reduced its winter losses by 45.5% to £61 million, and this was driven by its focus on network returns through early and decisive action taken on scheduling. This was coupled with a 2.8% decline in competitor capacity on its routes.

But the potential for widening first-half losses aside, EasyJet's results showed strong performance across a variety of crucial metrics.

The number of travellers carried by Europe's second-largest budget airline by passenger numbers increased by 4.2% to 14.3 million, while the load factor increased by 0.1 percentage points to 88.7%. Meanwhile, seats flown grew by 4.1% to 16.1 million.

Revenue per seat continued rise at EasyJet, adding 3.4% on a reported basis to £55.71 per seat or by 1.4% at constant currency while cost per seat excluding fuel increased by 3% on a reported basis and by 1.2% on a constant currency basis. This was largely driven by anticipated increases in charges at regulated airports and by increases in maintenance costs associated with the planned ageing of the fleet and increased proportion of leased aircraft.

The group also continues to maintain a robust balance sheet with £456 million net cash. It intends to self-fund both growth and the dividend from business cash flow.

Analysts have largely remained sanguine; Wyn Ellis at Numis expects EasyJet to drive strong yield growth due to: the quality of its network (the right slots at slot-restricted airports); the opportunity to take further share from legacy carriers; increased business traffic as work done with the GDS (global distribution service) providers and travel management companies bears fruit; and, yield managing allocated seating. The more positive UK economic outlook should also help'.

Investec however downgrades EasyJet from 'buy' to 'hold' maintining that the shares are fully valued and that while the timing of Easter is likely to benefit the second half, an anticipated increase in capacity is likely to create 'something a yield headwind'.


Issue Date: 23 Jan 2014