A 26% drop in a company’s profits isn’t something ordinarily welcomed by investors.
But in the case of budget airline EasyJet (EZJ), whose shares have ticked up 4.7% this morning to £13.36, there’s a sense that the firm has performed admirably in a tough market.
While the launch of its own package holidays, EasyJet Holidays, has captured most of the news, what the market appears to care about is the fact its full year numbers have come in as expected, towards the top end of its guidance range.
This is despite several pressures facing airlines including rapidly rising fuel costs, overcapacity with too many seats available and Brexit uncertainty putting some people off going abroad.
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Pre-tax profit for the year to 30 September fell 26% to £427m, but this was still at the higher end of the £420 to £430m guided range, while pre-tax profit per seat decreased by 32.9% to £4.07.
Revenue per seat dipped by 1.8% to £60.81, driven the firm said by some weakness in consumer confidence, but overall revenue was up 8.3% to £6.38bn, led by an 8.6% rise in passenger numbers to 96.1m and a 10.3 jump in overall capacity.
ZERO CARBON GAME CHANGER
Going forward, a game changer for EasyJet could be its aim announced today to become the world’s first major net zero carbon airline.
It will make all its flights net zero carbon by offsetting the carbon emissions from the fuel used, investing in projects that reduce carbon and carbon equivalents from the atmosphere.
The expected cost for the airline in doing this will be around £25m in 2020, it added.
EasyJet said it will compensate for every tonne of CO2 emitted from fuel used for its flights, by ensuring there is one tonne less in the atmosphere - whether by reducing CO2 by physically removing it from the air (e.g. by planting more trees) or by avoiding the release of additional CO2.
The firm says this is an ‘interim measure’, but will push to reduce its carbon footprint in the short-term and support development of new technology, such as electric planes, to ‘reinvent aviation for the long-term’.
AIRLINES UNDER PRESSURE OVER ENVIRONMENT
It comes as rival Ryanair (RYA) has started heavily advertising itself as a ‘low cost, low emissions’ airline.
AJ Bell investment director Russ Mould said the move from EasyJet shows the sector is ‘under real pressure to address its environmental impact’.
He added, ‘Regular fliers often fret about their carbon footprint so EasyJet’s move, at a significant but not unmanageable cost of £25m a year, could pay off. Well, at least if it is seen as a genuine strategy and not just window dressing.
‘Clearly the industry sees itself coming under more pressure in the future and is trying to get one step ahead as climate change becomes an increasingly important issue for politicians, regulators and the public.’