EasyJet drops after weak pound

Bloomberg

EasyJet Plc shares fell the most in almost four months after the company said a weaker pound in the wake of the Brexit referendum and higher fuel costs would weigh on full-year earnings more than
expected.
Shares of Europe’s second-biggest discount airline dropped as much as 9 percent, and were 8.7 percent lower at 982 pence in London trading, making it the second-worst performer on the FTSE 100 Index.
Rising fuel costs and the faltering pound, which inflates EasyJet’s foreign-currency expenses, will reduce earnings by 35 million pounds ($44 million) more than previously forecast, the company said in a statement on Tuesday.
EasyJet’s profits have also been hit by subdued travel demand following a string of terrorist attacks across Europe, and capacity expansion across the discount airline sector. The carrier has said it’s planning an overhaul to cut costs and streamline operations to ease the strain.
“The analysts have not reflected the further weakness of the pound and they haven’t reflected the new fuel numbers,” Chief Executive Officer Carolyn McCall said on a call with reporters.
The carrier previously said foreign exchange fluctuations would cost it 90 million pounds in the 12 months through September 2017. That figure’s now grown to 105 million pounds, with another 20 million pounds of additional expenses for fuel. Excluding energy, costs per seat will rise by about 1 percent this year.
“Guidance appears worse,” Gerald Khoo, an analyst at Liberum in London, said in a note to clients. “We see downside risk to consensus.”
EasyJet is due to decide on an EU state where it will apply for air operating rights allowing it to continue flying intra-continental routes even after the U.K. has formally quit the trade bloc, a move that will cost 10 million pounds over two years mainly to re-register its aircraft, it said. A charge of a 400,000 pounds was incurred in the first quarter related to the process.
The company also reported fiscal first-quarter results on Tuesday, saying that revenue rose 7.2 percent in the three months ended Dec. 31, 2016 to 997 million pounds, higher than the 982 million pounds predicted by analysts, with the passenger count up 8.2 percent to 17.4 million. Revenue per seat, a measure of fares, fell less than expected amid resilient demand in the run up to the Christmas
holidays, it said.
EasyJet cut 14 million pounds of costs in the first quarter through cheaper maintenance programs and higher volume purchasing at its airports as well as the up-gauging of its fleet to bigger Airbus Group SE A320 aircraft.
The discount airline has also negotiated a shorter notice period with Airbus Group SE on any deferrals of its A320 family of jet, McCall said on the call, giving it more flexibility on its existing fleet.
“We have not activated any deferrals yet, that is still under review and that will be taken at board level as part of a strategic look at what we do,” McCall said. “We will be forensic about that.”