easyJet profits plunge 70% as Middle East war drives fuel costs higher, takeover battle continues

Profit collapse

easyJet reported pre-tax profit of £85 million for the three months to June, a 70% drop from £286 million in the same period last year. Revenue edged up 2% to £2,983 million, but the bottom line was hit by a £105 million increase in fuel costs. EBITDA fell 38% to £304 million. The airline carried 25 million passengers (or 25.8 million, depending on source), down 0.4% year on year, while the load factor slipped to 88.9% from 90.2%.

Fuel and conflict

The rise in fuel costs is directly linked to the Middle East conflict that began in March. easyJet said its kerosene bill rose by 13% to roughly £100 million, with the war disrupting energy markets and pushing up jet fuel prices. The conflict has now lasted five months, and the airline warned that the full-year outcome "remains dependent on the important remaining bookings, as well as fuel prices, which continue to be volatile".

We have continued to manage the impact of the Middle East conflict, and its effect on fuel prices and booking trends, during the quarter.

Booking trends and summer outlook

Consumer confidence was shaken by the war, leading to a shift toward last-minute bookings. While late demand was strong, it did not fully compensate for the earlier weakness. However, easyJet noted that the load factor gap for peak summer is narrowing and the booking curve is extending. The carrier has sold 68% of its capacity for the July–September quarter. CEO Kenton Jarvis said pricing has been attractive, driving strong late demand for flights and holidays.

As consumer confidence increases, we are seeing the load factor gap close for peak summer and an extension of the booking curve as customers continue to prioritise travel and take advantage of our great fares.

Takeover battle

easyJet is at the centre of a bidding war between two US private equity firms. Apollo has offered £5.7 billion, or £7.15 per share, topping a £5.5 billion proposal from Castlelake. The board has recommended the Apollo bid. Under UK takeover rules, Castlelake has until 3 August to formalise its offer, while Apollo's deadline is 7 August.

Regulatory cloud

The takeover faces potential hurdles after reports that the EU may tighten airline ownership rules to prevent foreign investors from gaining control. easyJet shares fell as much as 14% on Wednesday on the news, before recovering 2.5% on Thursday. CEO Jarvis said he had not heard anything from the EU on the matter.

Peer comparison

Rival Ryanair also felt the impact of the Middle East conflict, reporting a 34% drop in after-tax profit to €538 million for the same quarter, missing analyst expectations of €579 million. easyJet Holidays, the group's package holiday arm, held steady with a pre-tax profit of £84 million, compared with £86 million a year earlier.