Easyjet’s profit warning sees shares plummet

British airline said it faced tougher business conditions in Q3 in a warning that sent its shares down 8%

British airline easyJet said it faced tougher business conditions in the third quarter, citing the cost of strike-related disruption and an expected dip in underlying revenue in a warning that sent its shares down 8 per cent.

Europe's No. 2 low-cost carrier behind Ryanair said it was positioned to continue to grow in this financial year, which runs to September, after it turned a profit in the weaker winter season for the first time. But the focus on Tuesday was on the negative news. Analysts flagged that they would reduce annual profit forecasts to reflect the £25 million hit easyJet said its profit would take from air traffic control strikes in France in April, which led to the cancellation of over 600 flights. The disruption, the slight decline in trading plus the timing of Easter, meant that the company was now forecasting third-quarter revenue per seat to be down around 4 percentage points, excluding the impact of currency moves.

Numis analyst Wyn Ellis said he was cutting his forecast for easyJet’s full-year pretax profit to £660 million from £691 million.

Shares in easyJet traded down 8.3 per cent to 1,679 pence at 0828 GMT, their lowest level for two months. Some analysts said the share price reaction was overdone. "The scale of the reaction to the outlook seems somewhat excessive," Hargreaves Landsdown analyst Richard Hunter said.

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easyJet continued to forecast growth in revenue and profit for the full year, as forward bookings progressed in line with last year and as the cost of its fuel bill shrinks by up to £120 million due to lower oil prices. The company said it was confident its fares would be competitive against rival operators, as it lowered them to reflect the lower oil price, allowing it to continue to grow.

Ryanair said in February that profits would only rise modestly in the year ahead as low oil prices help rivals to cut fares. For the six months ended March 31st easyJet, which like other European airlines has historically made a loss over the winter when fewer customers fly, reported pretax profit of £7 million , at the upper end of its forecast for between a loss of £5 million and a profit of £10 million. It said a lower fuel price and favourable currency movements as well as a strong finish to the ski season helped it make a profit in the first half.

Reuters