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easyJet shares lift off as it raises profit guidance despite impact of air traffic control strikes

easyJet said strikes by French air-traffic controllers and severe weather resulted in 2,606 cancelled flights in the third quarter
easyJet warns its Tegel operations will generate a total loss of £175mln for the year

easyJet PLC (LON:EZY) raised its profit guidance for the year as cost savings offset the impact of having to cancel more flights in the third quarter due to industrial action and severe weather.

The budget airline now expects headline pre-tax profit – including the operations at Berlin Tegel Airport that it agreed to buy from insolvent Air Berlin last October— for the 2018 financial year of £550mln to £590mln, up from the £530mln to £580mln range it estimated in its first-half results in May.

READ: EasyJet boasts ‘excellent performance’ in interims as revenue passes £2bn

The company’s cost-cutting programme has delivered savings of £85mln in the year to date on the back of discounts on additional passenger volumes and fleet up gauging – the practice of swapping smaller aircraft for larger ones.  

Foreign exchange movements will also have a £20mln positive impact on full-year profits.

Shares jumped 3.7% to 1,714p in morning trading. 

Flight cancellations surge

Strikes by French air-traffic controllers and severe weather resulted in 2,606 cancelled flights in the third quarter to June 30, compared to 314 the same period a year ago.

easyJet said these disruptions had an impact on revenue, costs and operational performance in the period. Cost per seat, excluding fuel at constant currency, for the year is forecast to rise about 3% as a result of the industrial action and poor weather.

The timing of Easter also had a £40mln negative impact on revenue.

Passenger numbers boost revenue

The group still delivered a 14% increase in total revenue to £1.6bn in the third quarter, boosted by an increase in passenger numbers and ancillary revenue.

Passenger numbers rose by 9.3% to 24.4mln, supported by an 8.9% increase in capacity to 26.2mln seat, though this was lower than originally planned due to disruptions.

The load factor, a measure of the number of passengers to seats available, edged up 0.3 percentage points to 93.4%.

Ancillary revenue gained 21.1% to £328mln, as more passengers chose to buy allocated seating and pay for hold luggage.

Total revenue per seat, excluding the Tegel operations, rose by 4.8% at constant currency, in part thanks to higher fares amid what it described as a "benign competitor environment". Competitors took up fewer slots from collapsed Monarch Airlines than expected.

George Salmon, equity analyst at Hargreaves Lansdown, said: "Reduced competition is a clear positive, but trends in the wider market are out of easyJet’s control. We think the results it’s starting to deliver from self-help measures, such as the dramatic increase in ancillary revenues, are particularly encouraging."

For the second half, the company expects revenue per seat at constant currency to increase by "low to mid-single digits".

Tegel operations to post worse-than-expected loss 

However, easyJet warned that it expects the Tegel operations would generate a total loss of £175mln for the year, compared to the £160mln estimated at the time of the acquisition. The carrier said revenue per seat is weaker than expected due to additional capacity in the Berlin market.

Nevertheless, the group said the integration of the operations is “progressing well” and predicts £50mln in costs, compared to its previous guidance of £60mln, as fleet has transitioned into operations earlier than expected.

Chief executive Johan Lundgren said easyJet is on track for a positive summer trading period in the fourth quarter.

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