A warning from easyJet PLC (LON:EZY) about weaker summer bookings has fuelled concerns about the impact of Brexit uncertainty on the airline sector.
easyJet said on Monday that it was “more cautious” about the outlook for the second half as worries about Brexit had hit customer demand, leading to softer ticket prices in the UK and across Europe.
Shares in easyJet dropped 8.4% to 1,023p around noon, dragging down stocks in the rest of the sector, including British Airways owner International Consolidated Airlines Group PLC (LON:IAG), Ryanair Holdings PLC (LON:RYA) and Wizz Air Holdings PLC (LON:WIZZ).
2019 could be a washout for the travel sector
“EasyJet’s warning about softer ticket prices has sent shockwaves across the airline industry, adding to problems already voiced by tour operators and suggesting that 2019 could be a washout for the travel sector,” said AJ Bell, investment director Russ Mould.
“People have been worried about the impact of Brexit on the aviation sector and there is lots of chatter that individuals are holding off from booking flights and holidays.
“If you’re going to hand over a large sum of money for a trip abroad, you want to be reassured that the flight will actually happen and will take off as scheduled. At the moment travellers don’t seem to have that reassurance.”
Brexit drags on, adding to woes for airlines
The UK was originally due to leave the European Union on March 29 but was granted an extension to April 12 after MPs voted against the prime minister’s Brexit deal for a second time.
MPs voted against Theresa May’s plan for a third time on Friday, raising the prospect the UK will leave the EU without a deal.
EU leaders have reportedly said they are prepared to give the UK another extension provided that May offers a clear path through the deadlock such as a general election or a second referendum.
A longer extension would drag out the uncertainty and potentially deter consumers from booking holidays.
In a note to clients on easyJet, Liberum analysts said they think there is a chance the Brexit deadlock could continue beyond the next few weeks, with clarity not emerging in time for summer bookings to recover.
“We are also concerned that this has drawn attention away from softer economic conditions across Europe, which management does not appear to be reacting to,” Liberum added.
Fuel costs and excess capacity also weigh on sector
A lack of clarity on Brexit is not the only worry for easyJet and its sector peers.
Budget airlines are also battling higher fuel bills and excess capacity across Europe.
easyJet expects to post a first-half pre-tax headline loss of £275mln, compared to an £18mln loss a year ago, largely due to an increase in fuel costs.
“The firm blame Brexit uncertainty for their ‘cautious’ outlook for the next six-months, yet the biggest worry for investors was the rising costs that led to a £275 million loss over the past six-months,” said Joshua Mahony, senior market analyst at IG.
“With headline costs up to 18.8%, the rising revenues are not enough to bolter the books for a firm which is clearly suffering in the shadow of this Brexit uncertainty.”