easyJet announce flight cuts; expect lower profits
24.07.08
Shares in easyJet fell today after the airline revealed its profits will be lower than the City has been expecting. The budget airline also announced some deep flight cuts this winter, especially at Stansted Airport. It blamed the soaring cost of fuel for the drop in profits, and said that it is cutting back on capacity to reduce costs.
easyJet made annual pre-tax profits of £191m last year. Analysts had been forecasting a fall to around £138m this year, because of the higher bills facing easyJet and the rest of the industry, but the airline said today that it would be between £110m and £120m.
The airline said in a statement the high price of oil had added around £185m to its annual fuel bill, which in turn had hit margins. It said that it had offset around half of its fuel bill increase through cost cuts, while capacity for this winter will be cut by between 4% - 6% to reduce unprofitable routes.
Announcing its third-quarter results, easyJet said that its revenue was up by 32% to £641m, driven by strong ancillary performance and the strengthening Euro, as it continued to absorb the acquisition of GB Airways earlier this year. Revenue per seat rose by 12% to £46.36 in the same period, boosted in particular by hold baggage charges.
Despite industry fears that consumers would reduce their spending and cut down on holidays, easyJet's passenger numbers have continued to increase - up 16% to 11.5m in the quarter - with particularly strong growth at Gatwick and on routes to France and Italy.
However, easyJet will cut capacity at Stansted by 12% over the 2008/09 winter. It will also implement a further raft of cost-cutting measures including reducing the number of flights during less profitable times and reallocating aircraft from less popular bases to busier areas. Overall capacity growth for winter 2008/09 has been reduced and is currently planned to be in the region of 4% - 6%.
The airline said in a statement: ‘In the current environment, flexibility is vital and easyJet continues to review its schedule and may make further adjustments, both to eliminate unprofitable flying and to seize opportunities.' Its shares fell 3% on the news.
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