(Reuters) – Budget airline EasyJet warned on Monday that European travelers were holding off booking their summer holidays for fear of how the Brexit process will end, weakening demand for tickets and prices.
In a trading update brought forward after a review of its Brexit preparations, easyJet confirmed its previous expectations for a 275 million pound ($360 million) loss in the six months to the end of March along with a fall in average prices per seat.
It also said it hoped prices would rise in the second half of its financial year, but based that on the assumption that Britain will have resolved its Brexit debate.
It said while domestic travelers were still booking, there was a visible drop in demand for flights to and from the United Kingdom.
The airline had previously been among the more bullish voices in the sector on the fallout of Britain’s progress on leaving the trading bloc, playing down the risks when it raised dividend payouts last November.
Its shares sank 7.4 percent by 1420 GMT, dragging down Europe’s biggest airlines with it.
“We had hoped for clarity around Brexit at this point of time and that hasn’t happened and that clearly has had an impact on customer demand,” Chief Executive Officer Johan Lundgren told reporters on a call.
“Whenever people turn on the television or they are looking up news and they go on to websites, they see uncertainty and lot of bad news. There is a waiting pattern for customers.”
For a graphic on European flyers in Brexit holding pattern, see – tmsnrt.rs/2HOQoGJ
AIRLINES UNDER PRESSURE
European airlines are already battling over-capacity and high fuel costs. Iceland’s WOW air was the latest casualty last Thursday, halting operations and cancelling all future flights after failing to raise more funds.
Shares in Ryanair, British Airways-owner IAG, Air France KLM and Lufthansa were among the worst performers on the pan-European STOXX 600 index as investors worried about the peak summer season.
“There is a slowdown and the uncertainty around Brexit is affecting the consumer confidence in the third quarter and also going into the fourth quarter,” Lundgren said.
“We also expect the overall environment in Europe to get worse, because that’s what (air traffic network) Eurocontrol has signaled.”
Another challenge faced by airlines is congestion that leads to costly delays. The number of European flights delayed by up to two hours is set to increase seven-fold by 2040 due to greater travel demand and a lack of capacity, European network manager Eurocontrol has said here.
EasyJet, which operate 979 routes and employs more than 14,000 people, forecast revenue per seat at constant currency to inch higher in the second half.
“The group 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 Hargreaves Lansdown analyst George Salmon.
For a graphic on EasyJet blames Brexit for weak outlook, see – tmsnrt.rs/2HRTvOh
ON THE BEACH
Britain and the EU have said that flights will continue, even in the event that there is a no-deal Brexit and EasyJet is sure that it would be flying as usual.
EasyJet, founded in 1995 by Stelios Haji-Ioannou to offer low-fares flights in Europe, said it has raised the number of aircraft on standby and added crew to fight off disruption from Brexit over the summer.
Unlike a number of its competitors, the airline operates with Airbus planes and has been untouched by the grounding of Boeing’s 737 MAX planes since a second deadly crash in Ethiopia last month.
EasyJet executives do not think that Brexit will have a long-tern impact on the aviation sector.
“The quicker we get certainty around the outcome of Brexit, the quicker the consumers will … go back to wanting to fly and spend their time on a beach during the summer period,” Chief Financial Officer Andrew Findlay said.
For a graphic on EasyJet warns Europeans holding off booking, see – tmsnrt.rs/2V9bym7
Interactive graphic on EasyJet capacity: tmsnrt.rs/2VbcVR0
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Patrick Graham/Keith Weir