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Budget airline EasyJet is hoping to capitalise on Thomas Cook’s demise by relaunching its package holiday arm. The news came on the back of the airline’s latest trading statement, where it reported a fall in pre-tax profit to the end of September, down from £578m the previous year to £427m. Share prices were still up 3.3% though, standing at 1,332.50p at the time of writing.
Along with the holiday package launch, CEO, Johan Lundgren made another bold move, announcing EasyJet would be the first major net zero carbon airline by offsetting carbon emissions. So, could this news send the EasyJet share price flying?
Offsetting carbon emissions is likely to cost around £25 million, and amidst mounting pressure on the aviation industry to consider its environmental impact, it has provided some good publicity at least. How meaningful the pledge will be in the longer-term is difficult to predict – while offsetting takes carbon dioxide out of the air, it doesn’t actually reduce overall net emissions. The airline has also pledged to work with Airbus to develop electric and hybrid electric planes for short haul European flights, although obviously this is not on the horizon just yet.
The relaunch of EasyJet’s holiday business is likely to have a more imminent impact on the airline’s share price as Lundgren wants to get this off the ground before Christmas. Currently, while around 20 million passengers every year fly with EasyJet, only half a million book accommodation through the airline. EasyJet certainly has the infrastructure to support a package holiday business, and the model makes sense as people move further away from booking holidays on the question. Some have questioned whether there really is a gap in the market though, with even rival Wizz Air’s boss Jozesf Varadi questioning the move, stating “I don’t think this packaged holiday industry is going to flourish, I think that the model is outdated.”
Despite the profit dip, EasyJet’s full-year results were in line with expectations, with total revenue up 8.3% to £6.4 bn and passenger numbers rising 8.6% to 96.1m. The airline has made some headway with its cost cutting and efficiencies programme, making savings of £139m which is a jump from last year’s £107m. Headline cost per seat, including fuel and currency movement, rose by 1.5% to £56.74 though, which could be relevant in the current climate for the airline industry where every penny counts.
There are mixed opinions on what this all means for EasyJet and its investors. There’s no doubt that the industry is fiercely competitive and getting more so every day – political uncertainty, rising fuel costs and an overcrowded marketplace are all taking their toll on budget airlines. Some analysts have raised concerns about the likelihood of the holiday business taking off while customer sentiment remains weak and have questioned whether the headline figure of £25m to offset emissions is improbably cheap. Others are cautiously optimistic about the latest news though, suggesting that this year’s 43.9p per share dividend and 3.3% yield – while not ground-breaking – are a comfortable return, considering the turbulence that the aviation industry is facing.
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