Low-cost airline EasyJet lost almost one-fifth of its value yesterday after issuing a warning about escalating fuel prices and increased competition in the low-cost sector.
It saw its share price tumble more than 20 per cent earlier yesterday as the market reacted to a profit warning in its trading statement, although the shares recovered slightly later to finish down 18.6 per cent.
The low-cost airline vowed to use its financial strength to defend market share in the face of "unprofitable and unrealistic pricing" by competitors.
The company said short-term profit growth might be restricted by the market share defence policy, but it would ensure medium and long-term strength in a market where it agreed with rival Ryanair that there would be casualties among its competitors.
Last week, Ryanair reported a drop in net profits and said that it expected only one or two of the larger European low-cost carriers to survive the blood-letting. Its shares dropped slightly in London yesterday.
EasyJet said pre-tax profits for the current year would exceed the £52 million ($96 million) achieved last year, assuming sterling remained strong against the dollar, oil prices eased and there was a degree of geopolitical stability. Analysts had previously predicted full-year profits at £80 million or more. EasyJet said fuel prices continued to be a concern.
Although more than half its second-half requirements were hedged well below the prevailing price, if prices continued at their current levels profits would be hit by £4 million, it said.
In May, EasyJet's passenger numbers were up 19 per cent on the same month last year at almost 2.1 million, although the load factor slipped 2 percentage points to 81 per cent.
The airline's capacity will increase some 20 per cent this year. The company said its revenues were 24 per cent higher at more than £1 billion.
In early trading the company's share price fell to a low of 152.7p, almost 24 per cent down on Friday's close. That compares with a 52-week high of 389p in January and is below the 52-week lowest close of 159p seen almost exactly a year ago. By late afternoon the share price had recovered slightly, trading at 157.9p, 18.56 per cent lower.
EasyJet said May passenger numbers rose 19 per cent from a year earlier, with unaudited revenues for the month rising 24 per cent to £1.015 billion.
Chief executive Mr Ray Webster told delegates at a Singapore conference yesterday that EasyJet expected 24 million passengers in Europe this year. "The short-haul model is going to be what the customers want," he said.
Budget airlines have consistently enjoyed rising passenger numbers, but their traffic growth has come at the cost of offering bargain fares that often yield low profit margins.
"The low-cost market in Europe is becoming increasingly competitive as the continued expansion at both Ryanair and EasyJet, combined with the emergence of a number of new start-up carriers, has resulted in too much capacity growth chasing too little demand," said Standard Life Investments fund manager Mr Edward Legget.
Budget airlines have also found it difficult to offset rising fuel costs as they refuse to follow mainstream airlines by imposing a fuel surcharge. - (Financial Times Service; Reuters)
