easyJet announces bigger loss for first half of FY2010-11

easyJet has reported its financial results for the first half of its 2010-11 financial year (1 October 2010-31 March 2011) including a deeper loss of £153 million compared with a loss of £79 million in the first half of FY2009-10.

Total revenue for the half year was £1,266 million, an increase of 8.1% over the £1,171 million in the same period 12 months ago. The pre-tax margin was –12.1%, and the return on capital employed was –7.5%. The loss per share was 27 pence compared with a loss of 14 pence per share in the first half of FY2009-10.

The pre-tax loss of £153 million is in line with expectations, says the airline. The increase in fuel unit cost accounted for £43 million and increased passenger taxation accounted for £21 million of the £74 million increase in pre-tax loss compared with the previous year.

easyJet reports that good progress was made in implementing its strategy including putting in place the building blocks for the roll-out of the carrier’s business traveller proposition in the second half of the year.

Passenger numbers grew by 11.6% to 23.9 million with 59% of passengers originating outside the UK, an increase of 5 percentage points compared to the prior period. The load factor improved by 0.4 percentage points to 85.4%.

The ancillary revenue per seat improved in the second quarter (1 January-31 March 2011) and as a consequence was broadly flat for the six months at £10.20 per seat.

The cost per seat (excluding fuel) decreased by 2.8% for the half year excluding the costs of snow and strike disruption in the first quarter. After the impact of this disruption, cost per seat excluding fuel fell by 1.2% on a reported basis. The airline says that good cost control has meant that unit costs reduced across all lines with the exception of crew costs where easyJet has invested to improve operational robustness and flexibility.

Commenting on the results, Carolyn McCall easyJet’s chief executive remarked, “The past six months have been tough with sharply rising fuel costs combined with cautious behaviour by consumers and an adverse impact from taxes on passengers. Despite this difficult environment we have made strong progress over the past six months in implementing the strategy outlined following our review of the business last year. Our top team has been rebuilt and we continue to optimise the network by configuring flight frequencies and destinations which are attractive to business travellers. We have also made use of the commercial freedom granted by the brand licence agreement and delivered progress in controlling costs. Our operation is now robust and we are well placed to successfully deliver our summer flying programme.

“Our cash generation remains strong and these results show that the steps we are taking are already having a positive effect,” McCall concluded.

Also commenting on the results was Sir Stelios Haji-Ioannou, founder and largest shareholder of easyJet. “I’m glad that at long last the easyJet board has recognised that by not growing the aircraft fleet size beyond the current levels of just over 200 aircraft, the company will make more money than by buying more aircraft,” he noted. “The management now needs to sweat the businesses’ existing assets and increase PAT margins from the current low 3% and not simply take all this business risk on behalf of the shareholders in order to then buy even more aircraft from Airbus.

“The company’s balance sheet is too lazy as a result of the previous absurd policy of zero dividends for 11 years after the IPO,” Sir Stelios added. "At more than £1.43 billion, the cash pile is the same size as the airline’s market capitalisation. This tells me that the stock market does not believe the business is creating any real wealth for its shareholders.

"This cash pile is about £600 million over and above the board mandated policy of holding £4 million per aircraft (i.e. circa £800m). I think shareholders would be better off if the board returned this surplus cash to them so they can invest it in other businesses," Sir Stelios concluded.

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