EasyJet joins other carriers in concern over high fuel price

Click to follow

EasyJet yesterday became the latest airline to add to the dark clouds gathering over the aviation industry with a warning that the historically high fuel price is making it much more difficult to make money.

Following the lead of rivals Ryanair and British Airways, the low-cost carrier said that it could make at least £45m less than expected in the second half of this year if the oil price remains at current levels of more than $100 per barrel. The profits warning added momentum to what has turned into a severe re-rating of airlines across Europe in recent months as investors have become increasingly worried about the health of the highly cyclical industry as it struggles to deal with soaring costs and faces a possible economic slowdown.

Chief executive Andy Harrison said: "It is pretty obvious that if the recent significant rise in the fuel price is maintained, then our second-half profits will be lower than we had previously expected." Investors shaved more than 10 per cent off easyJet shares by the end of the day.

Mr Harrison's bleak outlook followed even darker scenarios painted by his rivals. Ryanair's chief executive, Michael O'Leary, warned last month that a "perfect storm" of expensive fuel and recession could see the low-cost giant's profits cut in half next year. BA's finance director said that if oil gets to $120 per barrel, the carrier's profitability would be wiped out altogether.

After yesterday's pasting, easyJet was worth about half of what it was just one year ago, joining Ryanair and BA, which have both also seen more than half of their market values evaporate over the last 12 months.

The oil price, which touched a new high of $111.80 this week, fell yesterday on worries that America is sliding into recession.

Last month, Mr Harrison had predicted a 20 per cent profits jump for this year. Since then, however, the forward price for jet fuel for the peak summer period has surged from $840 per ton to more than $1,000 per ton. Only 40 per cent of the fuel that easyJet needs is hedged – at $750 per ton.

Airlines have been introducing an array of new charges on top of basic ticket prices in a mad dash to make up for some of the profits lost to more expensive fuels. EasyJet passengers are required to pay to check in their luggage, while Ryanair recently started charging customers to check in at the airport. Last month, British Airways pushed through its 12th fuel surcharge increase.

Comments