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Britain's easyJet reassures despite tough environment

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LONDON (Reuters) - British budget airline easyJet said it would meet expectations in 2019 despite a worse trading environment than last year as worries over Brexit and economic weakness in Europe hurt consumer demand.

EasyJet had already said last month that its outlook for the second half of the year was more cautious because European travellers were holding off booking their summer holidays for fear of how the Brexit process will pan out.

EasyJet said that its performance in the six months to March 31 was in line with expectations, with a 13.3% increase in passenger numbers. Headline loss before tax was 275 million pounds in what is easyJet’s off-peak season, also impacted by the late timing of Easter.

EasyJet shares, which had fallen 13% since the April trading update to their lowest in over two years, were up 4.9% by 0714 GMT.

Moving into the summer, easyJet said that forward bookings for the third quarter were 3 percentage points behind last year at 72%.

“It’s not so much that there isn’t any demand out there, but it’s definitely a tougher trading environment, which has an effect on the pricing,” Chief Executive Johan Lundgren told BBC radio.

“It’s partly down to the uncertainty that exists around Brexit. There’s macroeconomic uncertainties in a number of European countries, and all of that... means there’s a different environment this year than what we saw last year.”

The diminished consumer appetite means that revenue per seat is expected to be down in the second half, easyJet said, though it also expected costs per seat to fall too, helped by prior investment to mitigate the impact of flight disruption.

The airline said its profit expectations for 2019 were unchanged but its capacity growth in 2020 would be at the lower end of its historic growth rates.

“(The) guidance provides relief... (and) we think capacity growth moderation should be taken well, reducing FY20 risk,” analysts at Credit Suisse said in a note, reiterating an “outperform” rating on the stock but cutting its target price from 1,241p to 1,206p.

“However, we do not expect much FCF (free cash flow) generation in FY19E or FY20E without an uplift in demand.”

Source - Reuters

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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