Brexit Uncertainty Dampening Demand at EasyJet

 - April 1, 2019, 11:08 AM

The switch from the IATA northern winter to summer flight schedules took place without Brexit-related disruptions, but the continuing uncertainty about the timing and the terms of the UK’s pending exit from the European Union has begun to affect yields, EasyJet warned on Monday. In a trading update, CEO Johan Lundgren said the London Luton-headquartered low-cost carrier (LCC) witnessed “softness” in both the UK and Europe for the second half of its financial year ending September 30 owing to “macroeconomic uncertainty and many unanswered questions surrounding Brexit, which are together driving weaker customer demand.” Given the uncertainty, he added, EasyJet’s second-half outlook has turned “more cautious,” projecting revenue per seat at constant currency only “slightly up.”  EasyJet steered away from providing exact numbers on the outlook for the April to September period, and said only the projected slight seat revenue increase reflects weakening third-quarter underlying demand and an expected year-over-year rise in the fourth quarter as a result of yield initiatives and an assumption of a more certain Brexit outlook.

EasyJet expects to have incurred a £275 million ($358 million) loss in the past six months, driven by an approximate 7.4 percent fall in revenue per seat at constant currency—in line with earlier warnings—and an estimated 14 percent growth in passengers, to around 42 million from 36.8 million in the six months ending March 31, 2018. It plans to announce first-half results on May 17.

Lundgren described the LCC as “operationally well prepared” for Brexit. “As a highly profitable airline with one of the strongest balance sheets in aviation easyJet is well positioned to seamlessly connect Europe,” he asserted.

The company established a Vienna-based airline in July 2017 to protect its post-Brexit intra-EU traffic rights and now has more than 130 Airbus single-aisle aircraft on its Austrian air operator certificate (AOC). It also transferred crew licenses to EasyJet Europe and has increased its non-UK shareholding to 49.92 percent to meet EU ownership requirements. Under current EU rules for airlines, EU interests must own and effectively control at least 50 percent plus one share.

“Now that the EU Parliament has passed its air connectivity legislation and together with the UK's confirmation that it will reciprocate, [this] means that whatever happens, we'll be flying as usual,” said Lundgren. The EU has adopted no-deal regulations on basic air connectivity (giving UK airlines third- and fourth-freedom rights to and from the EU), aviation safety, and aviation security.

The UK had planned to leave the EU on March 29, but UK lawmakers on Friday rejected for the third time a withdrawal agreement Prime Minister Theresa May negotiated with Brussels. Under a recently negotiated extension pact, the UK has until April 12 to establish an alternative plan for a Brexit by May 22 or face the prospect of either a much longer extension—and participation in European elections in May—or leaving without a deal. European Council president Donald Tusk has called an emergency European Council Head of States Summit on April 10 to consider the UK’s Brexit plan.

The European Commission on Friday called a no-deal scenario on April 12 a “likely” scenario. “The EU has been preparing for this since December 2017 and is now fully prepared for a "no-deal" scenario at midnight on 12 April,” the EU executive said. “The EU will remain united. The benefits of the withdrawal agreement, including a transition period, will in no circumstances be replicated in a 'no-deal' scenario. Sectoral mini-deals are not an option.”