EasyJet: not so low-cost in 2008

Like Ryanair, EasyJet says rising fuel costs will hammer profits this year - so get ready for fare hikes...

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Last Updated: 31 Aug 2010

The budget carrier saw its shares nose-dive 17% today after issuing a profit warning. EasyJet said the soaring cost of fuel – the forward price of which has apparently shot up from $840/tonne to $1000/ tonne in the last six weeks – would result in a £45m hit to its bottom line. Since it won’t have time to pass this on to us lot in the form of higher fares, it’s likely to mean that its second half results (April to September) and thus its full-year profits come in below expectations. So it was no surprise to see its share price lose altitude so rapidly.

Today’s profit warning represents a serious change of tune from previous announcements. Although other airlines have been bleating about the impact of rising fuel costs for ages – Ryanair firebrand Michael O’Leary has already suggested it might cut his profits in half this year – EasyJet had given the impression that it was going to rise above the clouds. In fact, CEO Andy Harrison recently said EasyJet’s profits would increase by 20% this year despite the ‘perfect storm’ of slower customer spending, rising airport taxes and soaring fuel costs. And unlike O’Leary, Harrison usually prefers the moderate approach.

Naturally, he’s putting a brave face on it. ‘Of course the price of fuel will hit all airlines and we remain convinced that the combination of our new fuel-efficient aircraft fleet, together with the proven strength of the EasyJet business model will mean that we shall emerge as winners in a  high oil price environment,’ he insisted today. And some of the signs are good: passenger numbers are still rising, so its planes are fuller than they were this time last year.

However, we can’t help feeling that after years of plenty, the budget airlines are in for a tough time this year. They’re bound to pass these costs to passengers, and if prices start going up just as money starts getting tighter, we might be less inclined to put up with the less-than-pleasurable experience of budget flying.

But since the next best alternative is to travel by train instead, we think there's only one thing for it - drown your sorrows with a few of Ryanair's Bullseye Baggies...

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