EasyJet Annual Profit Rises as Business Appeal Draws Traf

EasyJet Plc (EZJ), Europe’s second-biggest discount carrier, said full-year profit increased at least 48 percent as the U.K. company attracted more corporate and leisure customers on routes where network carriers are withdrawing.

Pretax profit for the 12 months to Sept. 30 will be in the range of 470 million pounds to 480 million pounds ($763 million to $779 million), EasyJet, which had year-earlier earnings of 317 million pounds, said today in a statement. That compares with the 471 million-pound average estimate of 20 analysts.

EasyJet is ramping up efforts to draw business passengers with allocated seating, flexible tickets and higher frequencies on key routes, and began fast-tracking flexi-fare clients in May. While cuts at network airlines helped lure 10 million corporate travelers in 2012, the Luton-based carrier may face a more hostile environment through the winter as rivals like Ryanair Holdings Plc (RYA) slash fares and others boost capacity.

“EasyJet has delivered a strong performance in the last twelve months due to management action to generate value to our customers and maintain a tight control of costs,” Chief Executive Officer Carolyn McCall said in the statement.

‘Cost Advantage’

EasyJet rose as much as 1.4 percent to 1,332 pence and traded 1.2 percent higher as of 8:21 a.m. in London. The stock has risen 74 percent in 2013 for a value of 5.27 billion pounds.

“The company has a strong structural cost advantage over most of its competitors,” Panmure Gordon analyst Gert Zonneveld said in a note. “We expect seat revenues to rise in the coming years, primarily driven by modest capacity growth, maturing routes and bases, a growing proportion of business passengers and a more rigorous route management.”

Under McCall, EasyJet has targeted corporate connections, multiplying frequencies on services attractive to business clients while adding new routes from London to Moscow and between Milan and Rome Fiumicino airport.

A potential 86 million short-haul passengers flying from Europe’s top 20 airports each year could be surrendered to EasyJet by network carriers because they don’t feed lucrative long-haul services, the executive said in July.

Revenue per seat grew about 6 percent at a constant currency rates in the fiscal fourth quarter, driven by sales in July and August, the airline said. EasyJet, which had previously given a 450 million pound to 480 million pound range for full-year pretax profit, said it has sold over 25 percent of seats available for the first half of the new year.

Capacity Threat

Still, the carrier may face tougher competition this winter with intra-European capacity expected to grow as much as 6 percent, according to Deutsche Bank analysts Anand Date and Geof Collyer. This compares with two years of negative or minimal growth, the analysts said.

“We think outlook is more important than usual this year because out early indicators suggest that winter 2013-2014 is going to be challenging,” the analysts said. “We remain relatively cautious for fiscal year 2014.”

Ryanair, Europe’s biggest discount airline, said in September that it may miss its full-year profit target, citing greater price competition and some capacity increases. The Irish carrier said it planned to slash airfares and ground jets from November through March. Aer Lingus Group Plc (AERL) also trimmed forecasts after the summer heat wave weighed on bookings.

EasyJet said today that it is 67 percent hedged at an average price of $984 a metric ton of jet fuel for the year ending September 2014. At current prices and exchange rates the first-half fuel bill will be as much as 30 million pounds higher than a year earlier, with exchange rates having an additional 10 million-pound negative impact.

The airline is 78 percent hedged on its dollar requirements at an average rate of $1.57.

(Source: Bloomberg)