LONDON (Reuters) – EasyJet has lost over a fifth of its market value as it joins rival Ryanair in giving bleak comments on the outlook due to rising fuel costs and a price war.
The company also disappointed analysts by warning that 2004 pre-tax profits were likely to be below original consensus forecasts — only a month after publishing its interim results.
EasyJet said on Monday if the average fuel price remained at the current $360 per tonne, its results would be adversely affected by four million pounds at current exchange rates. Crude oil prices have soared amid rising tensions in the Middle East.
EasyJet expected its 2004 pre-tax profits to “at least exceed” last year’s 52 million pounds, but this was in stark contrast to house broker Credit Suisse First Boston’s initial forecast of 80 million pounds.
EasyJet shares were down 14.3 percent at 172 pence in early afternoon trade after falling as much as 24 percent.
Shares in Ryanair , which plunged in January when the Irish airline issued its first ever profit warning, fell 1.9 percent to 4.6 euros in London.
EasyJet’s latest stock-market woes come just a month after it warned that the price war with Ryanair and other carriers would keep fares under pressure and its shares plunged.
“EasyJet got panned in May and we thought that was the worst of it, so this has come as a bit of a surprise,” said a trader.
BLOODBATH
EasyJet said May passenger numbers rose 19 percent from a year earlier, with unaudited revenues for the month rising 24 percent to 1.015 billion pounds.
Chief Executive Ray Webster told delegates at a Singapore conference on Monday that easyJet expected 24 million passengers in Europe this year.
“The short-haul model is going to be what the customers want,” said Webster.
Budget airlines have consistently enjoyed rising passenger numbers, but their traffic growth has come at the cost of offering bargain fares that often yield low profit margins.
“The low-cost market in Europe is becoming increasingly competitive as the continued expansion at both Ryanair and easyJet, combined with the emergence of a number of new start-up carriers, has resulted in too much capacity growth chasing too little demand,” said Standard Life Investments fund manager Edward Legget.
“Until this situation changes, it is difficult to see how the current negative trend in yields will reverse,” added Legget, whose firm owns 0.4 percent of easyJet shares.
Budget airlines have also found it difficult to offset rising fuel costs as they have refused to follow mainstream airlines by imposing a fuel surcharge. EasyJet said on Monday it would not levy any extra fuel costs on tickets.
Last week, Ryanair reported its first operating loss since 1989 and warned of what it described as an industry “bloodbath”.
The price war has already led to casualties, with UK budget airline Duo entering administration earlier this year.
EasyJet said it would defend its market position against new entrants and that it expected to be one of the lone survivors.
Oriel Securities analyst Gerald Khoo said one difference between easyJet and Ryanair was that while the Irish airline had warned of a tough winter period, easyJet looked set to suffer a difficult summer.
“It’s clear that the summer is turning out to be especially challenging for easyJet,” said Khoo, who cut his rating on the stock to “reduce” from “hold”.
EasyJet shares have lost nearly 50 percent of their value since the beginning of May.
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