easyJet shares down as fuel costs rise
Despite reporting an increase in travellers, discount airline easyJet says an increase in costs will put a lid on future profits. Shares are down today, but not out.
(Video Transcript)
easyJet earnings hit by increasing fuel costs
Full-year (FY) earnings out today from easyJet has been overshadowed by the expectation that fuel costs are going to eat into any future profits by some margin.
Let's take a look at what we've got in terms numbers out today from easyJet. The company has come through with a loss before tax of £178 million. If you look at the EBITDAR level, this is before all the adjustments that came out for the fourth quarter (Q4), we are substantially up on this time last year, we saw £82 million of profit this time last year, this year it is £674 million.
But the problem is that future profits are going to be hit by a massive increase in costs. And, of course, one of the biggest costs of airline is the fuel price and the fuel costs. And this is expected to be up around about 50% in terms of overall pricing for the coming half year.
Share price chart
And that is one of the reasons, as I think, we've seen the drop in the share price at the start of today's trade for easyJet. The stock is now down 2.3%.
But you can see clearly here we have been a lot lower than where we are at the moment. So some profits have been returned to some investors who bought back into the low point today. But the bottom line is, easyJet continues to find the going tough.
And despite the fact that more travelers are coming, it's this cost base which is worrying investors as we look out from this point on.
Now, yesterday, Rolls-Royce and easyJet announced having successfully run an aircraft engine on hydrogen. Now, that will be in part some solution to this issue. But the problem is, anything where we're going to see any commercial flights take off driven by hydrogen, which itself was an aviation first with this relationship established and flights now coming through. But the point of fact is that this is not going to be allowed by the Civil Aviation Authority as a commercially viable option for some time to come.
But the two said they were already planning a second set of tests with longer-term ambition to carry out flight tests as well. So that's the very beginnings of what could potentially be a new era for these large airlines. But at the moment, at least, they're saddled with a massive increase in fuel costs.
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