Airlines and package holiday companies have taken a battering in recent weeks, but Jet2 owner Dart Group (DTG:AIM) has offered a small ray of hope for the troubled sector.
In a trading update ahead of the year ending 31 March, the firm expects its pre-tax profit - before foreign exchange revaluation and the impact from its fuel hedging - to be ‘significantly ahead’ of current market expectations.
Dart Group shares traded 9.2% higher this morning, rising to £10.59.
It also said that up until very recently, holiday bookings in January and February for summer 2020 had been tracking well ahead of its 16% increase in summer seat capacity.
Dart took advantage of the collapse of Thomas Cook to add more planes, and therefore seats, on routes where it was previously in competition with Thomas Cook.
Momentum has weakened since the number of coronavirus cases escalated across Europe, though the company insists its current cumulative summer 2020 bookings remain above those at this time last year.
Profit for next year will be hit however as the drop off in bookings, as well fuel hedging contracts becoming ‘ineffective’, impact the balance sheet, though the extent to which profits are hit is still uncertain.
FUEL HEDGE BLUNDER
Airlines typically lock in a price in one year for 60-80% of their fuel requirements the following year, and lock in another price for 40-50% of their needs the year after that.
Usually these firms are applauded for fuel hedging, as it gives a degree of certainty to some of the costs they face and protects them when the price of fuel soars, as it has done in the past couple of years.
However, the collapse in the oil price in recent days has made Dart's previously shrewd-looking fuel contracts appear a lot more expensive now.
In full year results for 31 March 2019, Dart said it had hedged 90% of its fuel requirements for this year at an average price of $604 per tonne.
The price per tonne is better than virtually of all its competitors - EasyJet for example has hedged at $655 per tonne - but its rivals have a lower proportion hedged, giving them more flexibility than Dart Group with the current low oil price.
