EasyJet Counts on Failed Rivals to Boost Big-City Routes

(Bloomberg) -- EasyJet Plc is counting on the failure of three rival carriers to help accelerate its expansion into major European markets, bringing a silver lining to a fare war that depressed full-year earnings.

The impact of a weaker pound should also ease, while fuel costs are set to decline, Luton, England-based EasyJet said Friday. U.K. rival Monarch Airlines Ltd., its neighbor at Luton, went into administration this week, while Air Berlin Plc and Italy's Alitalia SpA filed for insolvency over the summer.

“The current turmoil in the sector provides EasyJet with opportunities to capitalize on its strong customer proposition and grow and strengthen our positions in Europe's leading airports still further,” Chief Executive Officer Carolyn McCall in a statement.

EasyJet has been battling for market share after low oil prices encouraged European carriers to splurge on seating, spurring price drops that contributed to the demise of its rivals. The British company, which has been targeting bigger airports rather than the secondary ones usually favored by discounters, plans to further step up the challenge in 2018, boosting capacity6 percent.

Europe's second-biggest discount carrier is in the bidding forparts of Air Berlin's short-haul business, which could open up slots at Dusseldorf and Berlin Tegel airports. It is said to prefer those prospects over assets belonging Alitalia, though a reduction in the Italian operator's footprint might allow it renew a push into markets such as the lucrative Rome-Milan route.

Monarch Gap

Closer to home, EasyJet will be keen to fill the vacuum left by Monarch at locations including Luton and London's Gatwick airport, where it already has leading positions.

Credit Suisse analysts led by Neil Glynn said the company is “well positioned to structurally improve returns by absorbing 30 aircraft from Air Berlin and some or all of Monarch or its slots.” Such opportunities could begin to outweigh concerns about the fare decline and its impact on earnings, he said.

EasyJet shares traded 1.6 percent lower at 1,263 pence as of 10.32 a.m. in London after the carrier said pretax profit for the year ended Sept. 30 was between 405 million pounds and 410 million pounds ($530 million-$537 million), indicating a decline of at least 17 percent from fiscal 2016's 495 million pounds.

McCall, who leaves at the end of the year to run ITV Plc, said EasyJet had a strong summer, especially on routes to beach destinations, providing “positive momentum.” Revenue per seat, a measure of prices, declined 1.4 percent in the second half, slightly less than the 2 percent slide previously forecast.

Exchange rate movements including a slump in the pound following last year's U.K. vote to quit the European Union had an adverse impact of about 100 million pounds on earnings compared to fiscal 2016. That will shrink to 20 million pounds in the current year, while advantageous fuel hedging should pare the kerosene bill by as much as 145 million pounds.

Analysts had anticipated a full-year pretax profit of of 402.5 million pounds, the average of 19 estimates. The company had previously said the figure would be in the range of 380 million pounds to 420 million pounds.

To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Christopher Jasper