Shares in budget airline EasyJet (EZJ) rose half a percent to £11.14 in mid-morning trading, reversing hefty early losses, despite warning of a ‘significant softening of demand’ in one of its key European markets.

In a statement, the firm said demand and passenger load factors (how many seats on a plane are filled) have dropped in Northern Italy, where there has been a major coronavirus outbreak, and as a result it is cancelling some flights in and out of Italy.

Just under 10% of EasyJet's destinations are Italian cities, with key routes like Milan, Venice and Turin all affected.

But in an attempt to reassure the market, it said it has a working group meeting daily to ‘make sure all our processes and policies remain effective.’

Easyjet said, ‘Our procedures for dealing with communicable diseases are similar to those developed during the SARS epidemic and other global health emergencies.’

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It is also focusing on making a number of cost saving measures, including admin budget cuts, recruitment, promotion and pay freezes across the company, postponing non-critical capital spending, offering unpaid leave, stopping non-mandatory training and working with third-party suppliers to reduce costs.

It added that it will also reallocate aircraft for summer 2020 which will ‘offer the highest revenue opportunities on market recovery.’

AJ Bell investment director Russ Mould said the big question for airlines is not whether earnings will be impacted, but rather how big a hit they will take.

He explained, ‘In downturns airlines have to reduce the number of planes they are flying and also cut ticket prices to stay competitive. Both those factors can be negative for earnings.

‘The falling oil price will be positive as it should lead to lower fuel costs.  However, the big problem is going to be weaker demand.

‘If people are fearful about travelling to certain parts of the world, or indeed about going to airports and being surrounded by a large number of people, then demand for airlines is almost certainly going to suffer.’

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Issue Date: 28 Feb 2020