EasyJet shares nosedive as fuel prices ramp up losses

The airline says the soaring price of fuel could push its annual loss as high as £160m. And that's not the only reason investors are nervous.

by Emma Haslett
Last Updated: 10 May 2011
A nasty shock for Easyjet shareholders today: the low-cost airline said that if fuel prices continue to rise, it could double its year-on-year losses for the six months to March – to as much as £160m. Not surprisingly, its share price plunged by a whopping 13% this morning, as its latest figures suggested that rising costs were hampering its ability to recover from the multi-million pound hit that it took from all that snow-related disruption. If Easyjet – which has been doing pretty well lately – is having problems of that magnitude, it doesn’t bode well for the weaker players in the industry…

Just to quantify how much difference fuel costs make to an airline’s bottom line, Easyjet said today that the price of a metric tonne of jet fuel has risen from $681 to $897 in the last year. When you’re spending a third of your costs on fuel, that’s going to sting. In fact, it works out at an additional cost of £1.17 per seat, relative to the first half of last year – which the company will need to either absorb into its own costs, or pass on to its customers.

The snow clearly didn’t help, either. EasyJet said it had endured 30 consecutive days during late November and early December when at least one of the airports it operates from were closed. That cost it £18m, while an air traffic controllers’ strike in Europe added another £6m to the bill. (Management is presumably currently thanking its lucky stars that at least it doesn’t run flights from Heathrow, the airport most heavily beset by snow disruption).  

There was some good news: passenger numbers were actually up on last year, rising 8.8% to 11.9m - despite all the cancellations, and despite the fact that fewer than two-thirds of its planes left on time during the first quarter.

This pushed revenues up 7.5%, to £654m. And it’s probably true that Easyjet’s in a stronger position than most; it has, after all, just re-started its dividend and put in an order for 33 brand new Airbus A320s. But investors have been spooked this morning by Easyjet’s admission that demand had slowed in continental Europe, and that revenue from additional charges had come in lower than expected. That’s not the kind of problem that melts away with the snow…

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