EasyJet to raise fares after fuel costs lead to £57m first-half loss
Thursday, 8 May 2008
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EasyJet sounded the death knell for the era of low-cost air travel yesterday as it revealed that first-half losses quadrupled due to the record price of oil.
Andy Harrison, the chief executive, said that the company would raise its one-way fares – currently averaging about £50 – by nearly 10 per cent, or about £4, if the price of oil remained buoyant. This would be in addition to an array of optional charges, for luggage or priority boarding for example, that it has introduced to offset its unprecedented fuel bill.
"Fares will eventually rise if fuel prices are sustained. Airlines can't absorb an 80 per cent rise in fuel cost," Mr Harrison said. EasyJet and its main rival, Ryanair, are also likely to be freer to raise prices as smaller rivals are forced out of business by soaring costs. Mr Harrison said that weaker carriers that fly older, less fuel-efficient fleets and have higher cost bases will "downsize and disappear. It's the law of the jungle," he said.
His prediction came as he unveiled a £57.5m loss at the carrier for the six months to the end of March, the traditional low period for the company before the summer rush. Last year, it racked up £17.1m in losses in the same period. The jump in losses was due to a fuel bill that rose by 24 per cent in the intervening months to £264m, equivalent to 28 per cent of the company's total cost base.
The situation has worsened since the end of the reporting period in March – fuel today costs 80 per cent more than 12 months ago. EasyJet shares nevertheless gained on the poor figures because of the company's strong performance through the rest of the business – bookings were up 15 per cent, load factors, or the percentage of seats filled, remained steady at 81 per cent, while the company managed to shave about 1 per cent from operating costs.
Mr Harrison was confident that the carrier would make a healthy profit this year as the holiday season ramps up. "We have seen no sign of cutbacks in discretionary travel. The business is in great shape. The problem is the fuel price," he said.
Meanwhile, Aer Lingus introduced a long-haul fuel surcharge yesterday, one day after it upped baggage check-in charges.
