EasyJet's profits nosedive
Budget airline easyJet's full-year profits have taken a nosedive as soaring fuel costs rocked the aviation industry.
The airline's pre-tax profits plunged over 64% to £43.7 million in the 12 months ended 30 September. The £79.4 million reduction was driven by a substantial £86 million increase in fuel costs, the airline said.
The airline normally purchases the vast majority of its fuel in advance to avoid currency fluctuations, but as a result paid $951 per metric tonne, while the average market price was just $595 per metric tonne.
Interest income also slid by £30.5 million.
Nevertheless, the airline continued to remain in profit due to robust sales. Revenue for the 12-month period jumped almost 13% to £2.666.8 million, equating to over £50 per seat and marking a growth of over 10% on each seat.
Passenger numbers rose 3.4% to 45.2 million as easyJet lured customers from its more expensive competitors.
The airline increased its market share across short-haul destinations such as Paris, Milan and Madrid and in doing so improved its load factor by 1.4% to 85.5%, marking the first time in four years that the number has exceeded 85%.
The shift towards deploying more capacity to European markets was also evident, with Continental Europe bases increasing by 16%.
The tough trading environment spurred the airline to slash 19 expensive aircraft from the fleet and renegotiate maintenance arrangements with SRT to save £175 million over the next 11 years.
Despite reduced profit levels, easyJet generated a positive operating cash flow for the year of £134.5 million as a result of a strong improvement in working capital. The value of which was further improved by the strengthening of both the US dollar and the euro against sterling.
Andy Harrison, chief executive at easyJet, says: "This is an extremely resilient performance making easyJet the best performing European airline based on our robust yields. We are one of the very few European airlines to make a profit during the last 12 recessionary months.
"This is a tribute to the strength of our business model and the quality of our people and our network."
Looking ahead, easyJet said the winter period would remain tough but current fuel prices and exchange rates would combine to make substantial profit improvement for the airline in 2010.
Next year could also signal the end of easyJet's dominance at Luton. In response to the high cost of charges, the airline said it would remove some routes and redeploy aircraft to more profitable activity elsewhere.
The airline's shares fell over 2% to 383.60p following the results.
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.