Bargain fares signal too many seats, says Travel Weekly’s Ian Taylor
EasyJet reported a “robust performance” in third-quarter results to June this week, saying it remains on course to deliver a full-year profit of £400 million to £440 million “in line with expectations”.
That would be slightly down on the £445 million pre-tax profit it reported last year, but not bad given a squeeze on margins from airline overcapacity across Europe plus the costs of integrating the fleet and operations of Air Berlin at Berlin Tegel airport which easyJet acquired in 2018.
More: EasyJet poaches Ryanair operations chief
Chief executive Johan Lundgren noted “tougher macroeconomic conditions” but hailed a “significant reduction” in cancellations and lengthy delays as he reported an 11% increase in quarterly revenue to £1.76 billion.
However, passenger numbers grew 8% year on year in the three months, lagging a 10% increase in capacity.
Average revenue per seat was up 0.7%. Given the current UK inflation rate is 2% and the value of ancillary sales rose 3.6 percentage points above seat revenue – and contributed 27% of total revenue – that indicates a degree of discounting on fares as a result of the overcapacity.
For European carriers, April-June is the second most-important quarter of the year and Easter fell wholly in the period this year, unlike last, so the results indicate just how tight the market and margins have become.
In the circumstances, no wonder Lundgren welcomed “the capacity discipline by competitors in easyJet’s markets”.
Seats in August ‘under £50’
Lundgren confirmed easyJet would rein in its expansion over the coming year after increasing capacity 10% this year and 7% this summer.
Growth to 2021 would now be “at the lower end of historic growth rates” particularly this winter.
The growth of EasyJet’s fleet is set to slow from 332 aircraft this September to 349 next September and 352 in September 2021, although some of the carrier’s new aircraft will have more seats than aircraft they replace.
On a results call, Lundgren noted: “The environment from a demand point of view remains challenging. We have been pleased with late trading, but it’s still tough out there. It’s a challenging environment.”
He told Travel Weekly: “We’re pleased with the late booking environment in general. Bookings are coming through reasonably.
“But I would not go so far as to say bookings for beach [holidays] have picked up.
“There are some amazing deals out there. We have some 120,000 seats available in August at under £50.
“Demand is good, but we have Gatwick-Alicante, Luton-Alicante available in August for £36 or £42, so there is tremendous value.”
He added: “Our competitors’ capacity growth in easyJet’s markets is 3.4% [year on year]. We have adapted [and] it’s good to see discipline coming back into the marketplace.”
A COO for easyJet
No doubt Lundgren had Ryanair somewhat in mind although the carriers go head to head on few routes given the Irish giant’s historic predilection for airports no one had previously heard of.
Ryanair announced a reduction in its capacity growth next year to 3% from the 7% previously planned.
It tied the announcement to the grounding of Boeing’s 737 Max. Ryanair has 58 of the aircraft on order for delivery in time for summer 2020. It now expects to have about half that number in operation for the summer schedule.
Regardless of whether the 737 Max is solely to blame, the revision makes sense. Europe’s airlines need to cut capacity or the failures anticipated this winter – of which no names – will not remove enough aircraft seats to make a difference.
Lundgren did reveal something of a coup in relation to Ryanair by announcing he had recruited the Irish carrier’s chief operations officer (COO) Peter Bellew to join in a similar role and sit on the easyJet board.
Bellew will replace Chris Browne, who stepped down as chief operating officer for personal reasons in March.
The appointment is not likely to have gone down well at Ryanair, where Bellow has been since late 2017 – having re-joined the carrier following its pilot-rostering debacle in autumn 2017.
Bellew has been even more of a core figure at Ryanair than this implies, having worked at the airline for almost 10 years before leaving in late 2015 to join Malaysia Airlines where he spent 18 months as chief executive.
Lundgren hailed his “exceptional level of experience” and said: “We don’t have a confirmed date yet [for Bellew joining], but he is a great addition.”
I would expect Bellew to be spending a long time in his garden before transferring.
Brexit-proof and on time
Lundgren had a couple more positive points to make. First, easyJet is now close to complying with EU airline ownership-and-control rules should Britain leave the EU this October without a deal.
He reported 50.6% of the company’s shares are now in the hands of EU (or “qualifying EEA” and non-UK) nationals – just shy of the 51% threshold required.
So a no-deal Brexit holds no fears for easyJet, at least on the grounds of EU ownership.
The carrier has also made provision to suspend the rights of shareholders and force the sale of shares if it needs to close that 0.4% gap.
This, along with easyJet’s other preparations, led Lundgren to note: “We already fly as if Brexit had happened.”
Second, he hailed an improvement in easyJet’s on-time performance.
The airline reported 847 cancelled flights in the three months to June – not great for the 130,000 or so passengers affected but a considerable improvement on the 2,606 cancellations in the same quarter last year.
However, this was accompanied by a 32% rise in delays of more than three hours – the point at which EU passenger compensation rules kick in.
At the same time, the proportion of flights arriving within 15 minutes of the expected arrival time – the official designation of on-time performance – fell below 65% in June, so one in three easyJet flights arrived late last month.
It’s these small delays which accumulate over the course of multiple flights a day to produce longer delays by an evening.