UK low-cost carrier EasyJet is confident that increased competition will not impact its profitability as it prepares to lift capacity 5% in its next financial year.
EasyJet today announced full-year profits up more than a fifth to £581 million ($910 million) for the year ending 30 September 2014. Over the same period its revenue per seat (RPS) increased almost 2% at constant currency to £63.31.
In its outlook for its coming year EasyJet says it will increase capacity 3.5% over the first half - the traditionally loss-making winter season - and 5% over the full year.
"The near-term capacity environment is more competitive as we have seen over the year. EasyJet has allocated capacity to grow in a profitable and disciplined way. That is why we are growing our capacity over the winter 3.5%," said EasyJet chief executive Carolyn McCall during a full-year results conference call today.
"We have very successfully over the last three years reduced our winter losses," she adds. "So it is important not to get carried away over the winter with capacity. I think that our success has been because we really know what we are doing with capacity and why."
The airline though will expand capacity faster over the second half of the year, but is still confident it can do so profitably despite wider industry capacity.
"What we've said in the past two or three years is it will be low-cost carriers that are driving this capacity and that's exactly what's happening," says McCall.
"It's not head-to-head capacity, its diverse. And I think that allows us to be very focused about where we put our capacity and can win and get returns, and that's what we can control. We can't control the overall capacity environment. What we can do is control costs and make sure we get returns on what we do."
Much of the carrier's extra capacity comes at London Gatwick, driven by its acquisition of slots from Flybe. It expects capacity to increase 7.3% on its city pairs this year, which includes both its own extra capacity and notably that of Ryanair at London Stansted and British Airways and London Heathrow. "Having grown RPS in the second half of 2014 with a 5% growth [in capacity] on EasyJet city pairs, we believe we can sustain margins in a more competitive environment," say McCall.
The airline is forecasting RPS to be flat to slightly up for the year ending 30 September 2015. "We are 50% booked," explains EasyJet chief financial officer Chris Kennedy. "You always have competitor battles. Its sort of business as usual. We are used to competing. That flat to up guidance is what we see in the market."
McCall adds: "Our ticket price was flat to down, but we still grew the RPS, so there are lots of other initiatives we have, that are chosen or opted into by customers. There’s a lot of other ways are driving the RPS, rather than just the ticket price."
While there has been recent relenting in oil prices, the airline does not see it it drastically changing the capacity picture. "We are back to where we were in 2010," says Kennedy. "Inevitably around the edges you might get some people putting a bit more capacity in, but the fundamentals still haven’t changed. It’s the most significant cost for an airline."
Source: Cirium Dashboard