EasyJet has reported a 70% slump in pre-tax profit for the three months to June, attributing the decline to soaring fuel costs linked to the Iran conflict and a trend of later bookings. The low-cost carrier posted a pre-tax profit of £85m, down from £286m in the same period a year earlier, as fuel expenses increased by £105m following the outbreak of hostilities in the Middle East in late February.
Takeover bids and EU ownership rules
The profit warning comes as two US investment firms compete to acquire EasyJet. The airline's board initially accepted a £5.5bn bid from Castlelake, but later recommended a higher offer of £5.7bn from Apollo Global Management, equating to over £7 per share. However, a potential European Union review of airline ownership rules has cast uncertainty over the deal. EU regulations require 51% local ownership, and while Castlelake has named EU citizens as co-investors, Apollo has not detailed how it would meet these requirements.
Bookings and pricing trends
EasyJet noted that customer bookings have begun to improve, but passengers continue to book closer to departure dates. The company stated that the outlook for the remainder of its financial year depends on "important remaining bookings, as well as fuel prices, which continue to be volatile." Chief Executive Kenton Jarvis said: "Pricing has been attractive, driving strong late booking demand for our flights and holidays. Our recent experience is that bookings become strong in the month of departure. So my expectation is that as we run through August bookings will be above where they were this time last year." He added that fares are on average about 1% lower than a year ago despite significant fuel cost increases.
Ryanair also hit by fuel costs
Rival budget carrier Ryanair reported a 34% drop in profits to €538m (£457m) for the three months to June, also due to the doubling of jet fuel prices amid the Iran war. The price increase affected the 20% of fuel Ryanair needed that was not hedged against fluctuations.
EU entry-exit system disruption avoided
Jarvis said feared disruption from Europe's new entry-exit system had not materialised in the early summer, with countries like Greece delaying biometric checks until September under EU flexibility. He noted: "If they use that flexibility when queues build up, then it can be quite smooth. But it needs to be extended beyond September because October can be a very busy month as well." EasyJet has urged airports to extend earliest check-in times where possible to prepare for potential queues.
Market reaction and analyst views
Despite the profit decline, EasyJet shares rose over 5% in early trading on Thursday, partially recovering from an 11% drop the previous day after reports of a potential EU crackdown on airline ownership. An unnamed EU official told Reuters that a review would "protect strategic autonomy" and ensure control of regional airlines remains in Europe. Jarvis dismissed the relevance of the EU review, stating it begins in 2025 with an initial proposal not expected until late 2026 or early 2027, followed by a lengthy consultation process lasting two to three years: "Its timelines far exceed the bid process from Apollo and it's not linked at all … It's just, business as usual from the EU." Analysts have warned that the takeover battle "risks becoming a distraction." Garry White, chief investment commentator at Raymond James, said: "The very existence of a bidding war highlights what easyJet's board has long argued: that the market has been undervaluing the business and its growth prospects for quite some time."
