If anyone needs an example of how share prices don’t always correspond to results, EasyJet has kindly obliged. Despite the firm magically transforming a £53m pre-tax loss into a £7m profit in its best first half figures in thirteen years, its shares fell 10% to £16.51 this morning.
You just can’t please some people. The share price fall isn’t entirely down to the caprice of investors, however. There were three major reasons why EasyJet performed well in the six months to March 31 – cheap fuel, the timing of Easter and the weak Euro - and the positive effects of two of them aren’t due to last.
The fact that Easter was fifteen days earlier this year than last (thank you, lunar calendar) meant that the holiday surge fell within EasyJet’s first half reporting period. Essentially, that’s just transferred profits from the profitable second half to the typically loss-making first.
The same can be said for the QE-led weakening of the Euro (it’s fallen 8% since January to 71.8p), as easyJet’s revenues tend to be accounted earlier than its costs. So, while the firm has just benefitted from lower costs due to exchange rate movements, it expects ‘this will more than reverse during the second half, giving an adverse impact for the full year’ of £40m as revenues take a hit.
So, to an extent, the strength of these results has been borrowed from the next set. Then there’s the French air traffic controllers, who were striking in April. This caused EasyJet to cancel 600 flights, which it says will shave £25m from its full year pre-tax profit. When you add concerns over a £12m Eurocontrol navigation charge, which the airline is disputing, it starts to become clearer why investors aren’t too happy.
Shares generally fall on unpleasant surprises, not when firms do badly. Investors already knew EasyJet would do well this half, after a trading update in March that heavily slashed the projected winter loss. What they apparently didn’t know was that the clear blue skies wouldn’t last into the summer, but it’s hardly a storm approaching.
Boss Carolyn McCall said summer bookings were in line with last year and that revenue and profits continuing to grow in 2015. ‘Passengers are benefitting as fares fall to reflect a more competitive operating environment and lower fuel costs,’ she said. Indeed, EasyJet expects its full-year bottom line boost from cheap oil to be between £95m and £120m, which would more than make up for some striking Frenchmen (and women) and currency headwinds.
Planespotters and airport enthusiasts will also have taken note of EasyJet’s comments on London’s new runway. As McCall has already said publicly, the airline supports Heathrow rather than Gatwick, where it has a major presence. A third runway at Heathrow would ‘best meet the needs of consumers, will bring the competitive benefits of low-cost carriers to an airport with very little competition on short-haul routes, and will also support London's connectivity needs’.
With the Airports Commission’s recommendation due over the next few months, that’s probably not something Stewart Wingate and the Gatwick crew wanted to hear.