Losses double as EasyJet pays price for hedging its fuel costs on a high

Published on Wednesday 6 May 2009 21:35

BUDGET airline EasyJet has continued to lure new passengers, but its first-half losses still doubled after it bet on fuel prices remaining high last year.

Europe's second-largest no-frills carrier yesterday reported a pre-tax loss of 116.5 million for the six months to 31 March, as fuel costs increased by 90.6m over the same period a year earlier.

Although prices plunged at the end of 2008 after hitting record highs of $147 a barrel in the summer, EasyJet had already put hedging contracts in place.

The contracts – an attempt to mitigate against further rises in the price of oil – meant the group has paid more than the market rate for fuel in recent months, adding almost 4 to the cost of every seat compared to last year. The cost of fuel masked strong passenger growth, despite Easter falling outside the period and the wider aviation market struggling.

Luton-based EasyJet said it flew 19.4 million passengers during the period, a 2.9 per cent increase over a year ago, at a time when the European short-haul market declined by 5.6 per cent.

This came despite the company continuing to close down struggling routes – 26 during the period, including shutting down its base in Dortmund last year, ending direct flights between Edinburgh and the German city.

EasyJet predicted the route – launched with fanfare in 2007 – would see 55,000 passengers in its first year but announced it was slashing flights from the base last June, claiming high oil prices made it unprofitable.

The airline said yesterday it would continue to "manage" its flight schedule but maintained an ambitious expansion plan, with its fleet set to grow by 21 planes by 2011.

This follows a boardroom dispute with founder and major shareholder Sir Stelios Haji-Ioannou, who yesterday repeated calls for a more "conservative" growth plan.

"The company currently plans to buy too many new aircraft from Airbus too soon, and the passenger numbers are not keeping up with the aircraft numbers," a spokesman for Haji-Ioannou said urging deliveries be delayed.

Despite the losses, chief executive Andy Harrison predicted the carrier would stay in the black for the full year, assuming fuel costs and exchange rates remain steady.

He told investors: "EasyJet is financially strong, with cash and money market deposits as at 31 March, 2009 exceeding 1bn, and has good and well-established market positions and the board remains confident in EasyJet's future."

Harrison said the performance during the period was creditable, given the conditions which have seen it cut UK short-haul capacity by 8 per cent.

"It is very encouraging that we managed to grow revenues during a recession and there are very few airlines that are expecting to make a profit this year," he added.

For the first time, more than half of the airline's passengers originated from outside the UK, with European-based routes climbing 21.8 per cent.