EasyJet 'doing fantastically well' despite profits tumbling by 50%

Airline's 'resilience' built on decision to slow growth and boost revenue per seat
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EasyJet's profits plunged by more than 50 per cent in the last financial year thanks to back-firing fuel price hedges, but it is still one of the few airlines to be making money.

The budget airline yesterday reported full-year results showing pre-tax profits of £54.7m compared with £110.2m in 2008, despite sales rising by 13 per cent to £2.67bn. But while the recession was cutting a swath out of many airlines' crucial "revenue per seat" (RPS), easyJet has boosted its average fares by 10.9 per cent. It has also seen passenger numbers rise by 3.4 per cent to 45.2 million, helped by competitors' capacity cuts. And the load factor – which measures the number of seats filled – rose by 1.4 percentage points to 85.5 per cent.

Andy Harrison, the chief executive of easyJet, described the airline's performance as "extremely resilient" yesterday. He also announced plans to extend the company's cost-cutting plan from £125m by 2010/11 to £190m by 2011/12 – boosted by the renegotiations of a £1bn maintenance agreement with SR Technics that will save £175m over the next 11 years. "At current fuel prices and exchange rates, we expect easyJet to make substantial profit improvement in 2010," Mr Harrison said.

Despite the bullish outlook, Mr Harrison acknowledged he sees a "tough winter ahead", and the group's shares closed down 14.2p at 378p.

Notwithstanding the market's jitters, easyJet is a rare success story in the beleaguered airline sector. "EasyJet is doing fantastically well," Gert Zonneveld, the joint head of research at Panmure Gordon, said. "This year has been the worst ever in aviation history, and has seen some of the worst economic conditions in the UK and Europe for several decades, so to achieve an increase in RPS is incredible."

The key to the boosted yields is easyJet's decision to rein back growth, which averaged 15 per cent between 2002 and 2008, to just under 2 per cent for the last, recession-hit year. And by slowing growth, it has been able to keep up fares. "While so many competitors have seen a severe decline in yields, easyJet has seen an increase because they are opening fewer new routes so do not need to discount so heavily on fares," Mr Zonneveld said.

Its low-cost rival Ryanair has taken the opposite strategy. The Irish carrier reported profits up by 80 per cent to €387m (£343m) in the six months to September, inflated by a windfall from oil price hedges which masked a 17 per cent decline in average fares. It has maintained growth at an impressive 15 per cent, despite the recession, and revenue per seat has shown a double-digit drop as a result. "Ryanair has continued to grow aggressively despite the difficulties in the market, knowing it would result in pressure on yields, whereas easyJet decided to take its foot off the accelerator for a year," Mr Zonneveld said.

EasyJet says it plans to return to growth of about 10 per cent over this financial year and, based on existing bookings, revenue per seat will be down by only a few percentage points from the last year's stellar performance.