EasyJet climbs on forecast of higher profits this year

The low-cost airline easyJet yesterday forecast a sharp increase in profits for the year, despite a widening of losses in the first half due to soaring fuel charges and a decline in average fares.

Shares in the no-frills carrier climbed 5 per cent on the upbeat statement, which attributed easyJet's improved financial outlook to cost-cutting initiatives. The shares closed at 328p - 10p below the level at which FL Group, the company behind Icelandair, sold its 17 per cent holding last month.

EasyJet said that it expected full-year profits to come in at between £90m and £95m, 10 to 15 per cent higher than in 2005. The previous guidance had been that profits would rise by between 6 and 10 per cent.

A £55m increase in fuel costs for the six months to the end of March resulted in easyJet's first-half losses rising from £21.6m to £40.3m. But this was less than the £45m loss it had forecast previously. Excluding fuel, unit costs were down by 6.2 per cent. Average fares during the six-month period fell by about 1.5 per cent but overall income per passenger was up marginally due to a 31 per cent increase in revenues from ancillary activities, such as car hire and hotel bookings.

The first half was also affected by the late timing this year of Easter, which will have the effect of shifting about £10m of profit in the second half. EasyJet will also benefit from a much smaller rise in its fuel bill compared with the 49 per cent it experienced in the first half.

Andy Harrison, easyJet's new chief executive, attacked the new low-cost fares on offer from British Airways on domestic and European routes as a "fraud" on customers. "You can't be a low-fares airline unless you have a low-cost base and therefore BA's attempt to masquerade as a low-cost carrier is a bit of a charade. BA is a bit like one of the ugly sisters dressed up as Cinderella. You can still see its big feet sticking out."

EasyJet also criticised the 10-year investment plan published by the airports operator BAA, which envisages capital expenditure of £9.5bn up to 2016. The increase in investment will result in BAA's regulated assets growing by £2bn over the next two years to £12bn.

"BAA gets a guaranteed 7.5 per cent return on that - so it is incentivised to overspend on gold-plated, marble-lined terminals, like it's planning at Stansted. What other industry works this way?"