Stocks

European Airlines Descend Despite EasyJet Profit Boost

European airline stocks nosedived on Tuesday despite easyJet upgrading its profit guidance for the year.

European airline stocks nosedived on Tuesday despite easyJet upgrading its profit guidance for the year.

European airline stocks nosedived on Tuesday despite easyJet upgrading its profit guidance for the year.

The budget carrier said it had benefited from British Airways and Ryanair strikes in the second half of this year.

However, full-year costs will increase by 12% due to higher fuel costs, adverse foreign exchange rates and increased capacity.

The back story. European airlines have had a turbulent 2019 as the sector has faced heavy fuel costs, intense competition and the grounding of Boeing’s 737 Max jet.

The industry has also been hit by strikes and air-traffic control issues and a slowing eurozone economy.

Earlier this month, Bank of America Merrill Lynch struck a bullish tone on the sector, sending stocks higher.

The bank’s strategists said European airlines were priced for an outright eurozone recession, which they said was unlikely, and higher oil prices.

The collapse of travel operator Thomas Cook last month is also expected to alleviate some of the sector’s overcapacity issues, and has already boosted airline stocks.

What’s new. EasyJet said its full-year profit would come in at £420-430 million, in the upper half of its previous guidance range, in a trading update on Tuesday.

The low-cost airline said revenue per seat in the second half of the year will increase by 0.8% following increased demand due to British Airways and Ryanair strikes.

However, full year revenue per seat will drop 2.7%, while headline costs will jump 12% due to increased capacity, higher fuel costs and a £14 million hit from adverse foreign exchange rates.

The airline’s stock declined 8.4%, while its peers also fell following the update.

German carrier Deutsche Lufthansa dipped 3.8%, British Airways owner International Airlines Group (IAG) slid 3.4% and budget rival Ryanair dropped 2.6%.

Moving forward. Despite easyJet’s solid numbers and upgraded profit guidance, investors were clearly expecting more.

The airline’s revenue boost was driven by its rivals’ strikes, as opposed to a positive sector-wide trend.

The budget carrier’s update also reminded investors that the industry is horribly exposed to changes in fuel prices and foreign exchange rates.

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