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RPT-UPDATE 3-EasyJet looks to bigger planes to limit costs after tough first half
May 16, 2017 / 7:01 AM / 3 months ago

RPT-UPDATE 3-EasyJet looks to bigger planes to limit costs after tough first half

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* Shares drop 6 percent, top FTSE 100 faller

* Weak pound and late Easter hit budget airline's results

* Keeps outlook as competition, price pressures ease

* Will take 30 Airbus A321neo planes instead of A320

By Alistair Smout

LONDON, May 16 (Reuters) - British budget airline easyJet said it was looking to bigger planes to help keep a lid on costs after it reported a larger than expected first-half loss on Tuesday.

Europe's largest low cost carrier after Ryanair said the weak pound and the late timing of Easter this year had hit its first-half results, sending its shares down more than 7 percent, although it still expects a full-year profit.

The company announced that it had arranged to convert part of an Airbus order to larger planes, which would cut costs per seat, and was also postponing some orders of smaller planes.

At the same time, it was seeing signs that revenue pressure was easing with rivals holding back on growth in some of its big markets.

"Our bookings for the summer are ahead of last year showing that demand to fly remains strong," Chief Executive Carolyn McCall said.

EasyJet reported a headline pretax loss of 212 million pounds ($273 million) for its first half, widening from a 21 million pound loss a year ago and higher than Thomson Reuters estimates for a loss of 195.75 million pounds.

The airline, which often makes a loss in winter and a profit in summer, said it was comfortable with the market consensus for full year pretax profit of 367 million pounds. It also stuck to a target to keep costs per seat flat in its 2019 financial year compared with 2015, although they are due to rise this year by 1 percent.

"We said it would be a bit of a bumpy ride as we make some investments," Chief Financial Officer Andrew Findlay told analysts when asked about cost targets.

SHARES SLIDE

The first half figures included an estimated 45 million pound hit from Easter falling into the second half of its financial year this year, and a negative net currency impact of 82 million pounds.

EasyJet shares were down 7.5 percent in afternoon trade but they had risen around 40 percent in the past three months.

"The recent share price rally needed an upgrade, in our view, with too much hope that better long-haul trading seen at flag carriers would come to pass in short-haul too," said analysts at Panmure Gordon.

"Our Sell rating reflects the stuttering growth profile."

EasyJet said it will take 30 Airbus A321neo planes with 235 seats from next summer, instead of 30 smaller A320neo planes. The larger planes will enable it to reduce costs per seat by about 8-9 percent compared with the 186-seater A320neo.

McCall said the larger planes would probably be used to fly out of airports such as London Gatwick, Paris Orly and Amsterdam where it is hard to get new slots.

CFO Findlay said easyJet had exercised some deferral rights on Airbus planes as part of the switch to the larger planes in order to keep a lid on spending. Together with plans to exit some operating leases, that means easyJet now expects to have 343 planes in its fleet in 2021, versus a previous plan for 357. Its capital expenditure plans will come down by 250 million pounds over the next three years.

The airline is seeking a new operating licence in another EU member state to ensure it can continue flying within and between EU member states following Brexit, which it said it would secure before the summer. ($1 = 0.7761 pounds)

Additional reporting by Victoria Bryan in Berlin; Editing by Keith Weir and Susan Fenton

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