EasyJet predicts fall in demand over Brexit uncertainty
Britain's parliament has rejected the government's withdrawal plan three times
UK-based low-cost airline easyJet says Brexit and macroeconomic uncertainty is expected to result in a fall in customer demand for the second half of 2019.
The company’s share price plunged by over eight per cent in the hours after the trading update on Monday morning. It predicted a first half of 2019 headline loss before tax of roughly £275 million.
Headline costs are expected to increase by some 18.8 per cent because of a moderate rise in cost per seat excluding fuel, increased capacity and high fuel unit costs.
Britain remains in a political impasse after parliament rejected the government’s Brexit plan for a third time last Friday. MPs now have until April 12 to come up with an alternative or they risk crashing out the European Union without a deal.
“For the second half we are seeing softness in both the UK and Europe, which we believe comes from macroeconomic uncertainty and many unanswered questions surrounding Brexit which are together driving weaker customer demand,” said Johan Lundgren, easyJet’s Chief Executive in a statement.
The airline said weakened demand in the third quarter, which includes the lucrative summer holidays, were expected to recover on the “assumption of a more certain Brexit outlook”. As a result, easyJet “revenue per seat at constant currency is expected to be slightly up”.
Mr Lundgren said “we are operationally well prepared for Brexit” and insisted that “easyJet is well positioned to seamlessly connect Europe with the warmest welcome in the sky”.
(EasyJet) “reckons demand will pick up later in the year, but a more pragmatic observer would say it's difficult to put a timeframe on when Westminster and the EU 27 will solve the Brexit puzzle,” said George Salmon, equity analyst at Hargreaves Lansdown.
“Airlines can be fickle friends for investors. Fortunes are influenced by lots of factors outside companies' control, including weather, the oil price and strikes. Most recently it's been Brexit uncertainty holding the group back,” he added.
Last month, British regional airline Flybmi went into administration following a financial collapse it blamed on Brexit.
The news came as UK factories stockpiled last month at an unbelievable rate compared to other G7 countries over the Brexit uncertainty, leading to a 13-month high for manufacturing growth.
“Manufacturers reported a surge of business activity in March as companies stepped-up their preparations for potential Brexit-related disruptions,” said Rob Dobson, director at IHS Markit.
“It looks as if the impact of Brexit preparations, and any missed opportunities and investments during this sustained period of uncertainty, will reverberate through the manufacturing sector for some time to come,” he added.
However, if the Brexit uncertainty does not recede the “panic-buying” could mean businesses have to resort to heavy discounting “to free-up valuable operating expenses if normal order levels are not restored,” warned Duncan Brock of the Chartered Institute of Procurement & Supply.
Updated: April 1, 2019 08:59 PM